Updated for 2009
Below are some highlights of recent tax changes related to mutual funds and other common investments. If you have further questions about how these tax law changes will affect you, please consult a tax professional.
Through 2010, investors in the lowest tax brackets are eligible for a 0% federal tax rate on long-term capital gains. Long-term capital gains include gains on sales of securities, such as mutual funds and stocks and bonds, held for more than one year. A capital gain occurs when sales proceeds exceed the cost basis associated with the sold asset.
Eligible individuals can claim the 0% rate on gains on sales of most capital assets that have been held long-term before the sale. The lower rate does not apply to long-term gains that are subject to other special rates, such as collectibles or un-recaptured section 1250 gains on certain real estate. Typically, shares held for one year or less are not eligible for the 0% rate; however, distributions of long-term capital gains from a mutual fund will generally be taxed as long-term capital gains (either at the 0% or 15% rate) regardless of how long investors held shares in the fund.
The 0% tax rate applies to long-term capital gains for individuals in the 10% and 15% regular tax brackets and is scheduled to expire on December 31, 2010 unless Congress acts.
For those where investment gains take them into a higher bracket where long-term capital gains will be subject to the 15% rate (25% or higher) part of the gain may still qualify for the 0% capital gains tax rate.
The AMT income-exemptions levels have been increased for 2009. New exemption amounts for 2009 are $46,700 for single taxpayers and $70,950 for married taxpayers filing jointly. The increased exemption amounts, or AMT patch, are intended to reduce or eliminate AMT liability for millions of taxpayers. However, the ability to use the exemption continues to phase out, beginning at $112,500 for singles and $150,000 for married taxpayers filing jointly. There is currently no AMT patch for 2010.
The AMT is a tax system parallel to the regular tax system used in determining an individual's tax liability. It was established to ensure that taxpayers with substantial income could not avoid significant amounts of tax liability by using certain exemptions, deductions, losses and credits. The AMT has been affecting more taxpayers in recent years because regular tax rates have been reduced and the AMT exemptions have not been indexed for inflation.
Taxpayers who have reached age 70½ can make a qualified charitable distribution from their IRA directly to a charity tax-free. Qualified charitable distributions are tax-free and can count toward the required minimum distribution that IRA holders who are 70½ and older must take from their accounts each year. You must execute the distribution on or before December 31, 2009.
A qualified charitable distribution must be:
This information is for use with concurrent or prior delivery of a fund prospectus. Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. To learn more about this and other important information about each fund, download a free prospectus. The prospectus should be read carefully before investing.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Columbia Management Investment Advisers, LLC and its affiliates do not offer tax or legal advice. Consult with your tax advisor or attorney regarding your specific situation.
Not all products and all share classes are available through all firms.
RiverSource®, Seligman® and Threadneedle® mutual funds are distributed by Columbia Management Investment Distributors, Inc. (formerly known as RiverSource Fund Distributors, Inc.), member FINRA and managed by Columbia Management Investment Advisers, LLC (formerly known as RiverSource Investments, LLC). Threadneedle mutual funds are subadvised by Threadneedle International Limited, an affiliate of Columbia Management. Seligman is an offering brand of Columbia Management.