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Anthracite Capital, Inc. Message Board

  • nathantidwell nathantidwell Mar 28, 2002 2:34 PM Flag

    Tax implications of Cap Gains vs Div

    Is the tax rate on dividends such as AHR pays different from capital gains? I read that the tax rate on dividends is nearly 40% and the capital gains depends on your tax bracket. Thanks for setting me straight. :)

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    • Federal tax law applies to all.
      State tax laws vary so it depends on where you live.
      Local (Large city) taxes may also exist depending on where you live

      Federal- Long term (held more than a year) stock holdings (when you sell them) are long term capital gains. Rate is about 20%. I Havent read the tax laws in two years and let my tax guy do that. Less than a year they are treated like ordinary income and the tax depends on what your adjusted gross income is. The higher the income, the bigger the percentage of tax you have to pay. It isnt fair, but until we get a flat tax...

      State.. Some states have no income taxes, some do. Some are a percent of federal. Some are flat tax. In Taxachusetts, ordinary income (wages or short term capital gains or interest from state banks) are taxed at about 5% (flat tax). But dividends (after a small exemption) are taxed at twice the rate of ordinary income. So for me, taking the short term capital gain on a REIT that has run up in price before ex-dividend saves me that extra tax.

    • The tax rate for the div here (AHR) is PROBABLY "ordinary income."* The 40% assumes top income tax bracket (which some characters here are so far above they're in the stratosphere) plus state tax ... and NY City for some people.

      Joint, with my wife, for 2002, we'll probably be a notch or two below that. She gives money away to charities for sizable deductions and I've got so damn much cap loss carry over from last year that I'm not paying on trading "profits" for years, not to mention a fair amount of cap gains distributions from brick & mortar REITS and other stocks. Plus 6% for Georgia.

      *I say "probably" because you never can be sure with any REIT that they won't have some cap gains to distribute or all kinds of other weird stuff.

      • 1 Reply to irvkoch
      • a very quick thought on the subject of div income. If you have substantial assets (and not simply equity/stocks) that generate cash flow...look into corporate options ... its a hell of a tax shelter from div income. There are many hurdles to overcome (namely this cant be a simple investment corp...ie 60% or more for divs and < 5 holders)

        Ask your accnt for more info if its feasable in your situation.

        Otherwise, keep the high yield portion of the portfolio as sheltered as you can and allow the non-income stocks in the taxable account.

    • Tax rate on dividends is dependent on your income level, and can range up to nearly 40%. Short Term Cap Gains (under 1 year) are taxed the same as dividends, and Long Term Cap Gains (held over 1 year) are taxed at a max rate of 20%.

      Doc

 

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