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The Farm CPA

RSS By: Paul Neiffer, Top Producer

Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.

Capital Gains Tax Rates for 2011

Feb 08, 2011

We had a reader ask the following question:

"What will be the cap gain tax rates for the year we are now in 2011 specifically by income tax bracket?"
For 2011 and 2012, long-term capital gains (assets held for more than one year) are taxed at a maximum tax rate of 15% (unless you are selling collectibles or have depreciation recapture on real estate, then the maximum rate is 28% and 25% respectively).
Therefore, if you sell land that you have held for more than a year, the maximum federal tax rate on this gain is 15%.  It does not matter if the gain is $50,000 or $5 million, the maximum rate is still 15%.
Now, if you live in a state with state income taxes, you need to add this rate to the 15% federal rate to arrive at your overall effective tax rate.  The state income taxes paid are allowed as a deduction, however, it may be disallowed in arriving at your alternative minimum tax.  You should review this with your tax advisor to pin down your effective rate.  Also, some states allow an additional deduction for the sale of farm land and you need to check this out.
For those farmers in the lower tax bracket, they may have long-term capital gains taxed at zero.  For all capital gains and qualified dividend income in the 15% or lower tax bracket, this part of the gain is taxed at zero.
For example, if you income from farming and all other non-capital gain income creates net taxable income of $20,000, you can have long-term capitals and dividend income of about $50,000 which will be tax free for 2011 and 2012.
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