Sale of Assets Held for More Than Five Years

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The Tax Relief Act of 1997 created two new long-term capital gain rates, 8% and 18%, for assets held for more than five years (qualifying 5 year gain property). The 18% rate applied only to property that was acquired after December 31, 2000 or for property acquired prior to that date for which a one-time Special Election was made to treat the asset as though it had been sold and reacquired in 2001. For this reason, the 18% rate would not have taken effect until 2006. This rate has been superseded by the 15% rate under The Jobs and Growth Tax Relief Reconciliation Act of 2003. The 8% rate did not require the asset to have been acquired after December 31, 2000. Qualifying 5 year gain property that would have been taxed at 8% under the 1997 Act is taxed at 5%.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the tax rate on net long-term capital gains to rates that are lower than what was provided for the 1997 Act. Gain that would have been taxed at 10% under The Tax Relief Act of 1997 is now taxed at 5%. Gains that would have been taxed at 20% are now taxed at 15%.

The Form 1040, Schedule D (PDF) along with the instructions will help you calculate the correct tax during this transition year. For more information, refer to Publication 553, Highlights of 2003 Tax Changes and Publication 550 , Investment Income and Expenses, will provide additional information. You may also refer to the "Frequently Asked Questions", and/or the "Tax Trails" on the IRS web site.


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