Types of Tax Free Investments
Just when you think the tax laws couldn’t get more confusing, as we near 2010, when several important taxes are eliminated and investors are given big cuts. There’s a more curious tax provision, however, that I haven’t heard discussed much at all is quite lucrative for average income investment strategies. The long-term capital gains tax will be 0% for investors in the middle income tax brackets.
I think the reason this has gotten little press is that, for the most part, it is assumed that people in such low tax brackets don’t actually invest outside of their tax exempt (lois de robien) retirement plans. There are many retired people on fixed incomes who live primarily off retirement plans, that have some more time to do some clever tax planning. Also, if you reside in a high cost of living region, there are larger mortgage write-offs which basically means most people that reside in the more costly areas can have really large incomes and end up in the smaller tax brackets.
First, let’s discuss how this tax code functions. A specific type of income that is subject to 0% tax in 2010 is a qualified dividend. As a rule, dividends are qualified if they originate from conventional business of local corporations. On the other hand, foreign dividends don’t qualify, only domestic dividends do. It gets more complex, but as a rule this will help you sort out what constitutes a qualified dividend. You can look at prior tax statements to get an idea to what degree your dividends are qualified .
Long-term capital gains are also subject to the 0% tax rate in 2010. A long-term capital gain comes from the sale of a capital asset that you have held longer than one year. The regular examples would be stock or mutual funds that you have owned for longer than one year. Property like rental assets estate might be eligible for this 0% tax, but a percentage of rental real estate is taxed at a different rate for devaluation recapture, so it may be virtually impossible to eliminate rental property without being taxed. Most importantly, even if you are in a low tax bracket, the gain will most likely move you into a higher tax bracket. I would not attempt to use a tax approach so complicated, when it comes to real estate investing before speaking a CPA.
Of course, this does bring up the most interesting issue. When planning to sell assets for the 0% gain, the most important thing to hold in mind is that all gains will adjust your taxable income, and very possibly increase your tax bracket, making these potential non-taxable assets inviable. Just remember that you have to be in the low tax class to take advantage, which makes it very difficult to protect large gains from taxation.
As you can see, keeping up on all the tax thresholds, regulations, tax brackets, etc. can be quite mind boggling. On the other hand, you have some time to plan your investments and come up with a strategy. This may even be the time that warrants a visit to a CPA for an approach customized to your circumstances, but probably only if you have large amounts of assets in taxable accounts.
I know for me personally we have been toying with the idea of putting a small amount of capital in taxable investments, and now seems like a good time to do so, as well as setting up a portfolio for the children, since we will face low taxes on any investment gains for the next year. On the other hand, I would not necessarily consider this until our investments were fully funded.
Bernard Trollet, in cooperation with the site gestiondefiscalisation.com has Published this article which contains a large amount of educational facts to assist you discover more on the subject of tax shelters (defiscalisation de robien) and investing with better non-taxable returns.
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