Capital Gains Tax Laws - Who, When?

Ten Years - Just Getting Lower!

July 28, 2004
Bogdan Voicu

Capital gains tax is a tax charged on capital gains, which is the difference between the price of sale and the price of purchase (including improvements). Capital Gains Tax Laws were always a subject of debate in the Congress, whether they should increase or decrease it, but at least for the moment, no part has prevailed.

President George W. Bush signed the last Capital Gain Tax Law in 2003 (Jobs and Growth Tax Relief Reconciliation Act of 2003).

One of the most important changes in law regarding the capital gains tax was that of 1997, when president William Clinton signed the Taxpayer Relief Act. This enabled Americans to earn a lot more from the selling of their houses. The real estate properties were probably those that were the most affected by this law.

In 1998, Congress made a slight change again, in lowering the holding period from which you could have a lower tax rate to one year.

President's Bush 2003 Job and Growth Tax Relief Reconciliation Act brought a lot of tax cuts. First of all, it reduced the taxes on capital gains from 20% to 15%, to the assets that were held more than a year, for the higher income brackets. The lower income brackets had also a decrease in tax percentage, from 10% to 5%.

Maybe the most important element in the 2003 Act was that, starting with 2008, the capital gains tax for the long-term investments would expire. This means that any selling of an investment that was held at least 12 months before selling will carry no capital gain tax. This is very good news for those selling their houses.

So, for the last period of time, those that supported the decrease in capital gain taxes won. It remains to be seen if the United States economy will benefit from this.