Remember capital gains or losses at tax time

Radio Transcript, 2 minutes 45 seconds, for use during week of Jan. 14.

Description:  Penny and Susan talk about investment gains and losses

Announcer: Invest Wisely comes to you from Iowa State University Extension through a grant from the investor Protection trust, providing investor education on the web at: investorprotection.org.

Susan: Penny, it’s getting to be that time of year, time to do my taxes.  How does buying and selling stocks, bonds, or mutual funds affect what I owe?

Penny: Susan, stocks,  bonds and mutual funds are considered capital assets, which means that when you sell them you can have what’s called a capital gain or loss.

Susan: First, let me be sure I understand what you mean by the terms ‘capital gain’ and ‘capital loss’.

Penny: A capital gain occurs when the asset you’re selling increases in value between the time you bought it and when you sold it.

Susan: Okay.  So, that would mean that a capital loss is when my asset decreases in value?

Penny: yes.  Capital gains and losses are also defined as either short- or long-term.  A long-term capital gain or loss occurs when you own an asset for more than a year before selling it.

Susan: What’s the reason for dividing gains and losses into short- and long-term? 

Penny: Short-term gains are taxed differently than long-term gains.  If you’re in the lowest tax brackets--ten or fifteen percent--your long-term capital gains are taxed at five percent for 2007.  On your 2008 tax returns, if you’re in the ten or fifteen percent tax bracket, you won’t be taxed for your long-term capital gains.   Everyone else--those in tax brackets higher than ten or fifteen percent--pay 15% on long-term capital gains.

Susan: How are short-term capital gains taxed then?

Penny: Short-term capital gains are taxed at the same rate as your regular income.

Susan: What if I have dividend income?  How would I be taxed on that?

Penny: Dividend income from stocks, like income from long-term capital gains, is taxed at five percent for taxpayers in the ten and fifteen percent brackets for 2007, at zero percent for those same taxpayers in 2008 and at fifteen percent for all other taxpayers. 

Susan: Thank you, Penny.  This is very helpful.

Penny: You’re welcome.  And remember, for more information visit the ISU Extension website at extension.iastate.edu and look for ‘Invest Wisely.’