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Bill
Bill, Enrolled Agent
Category: Tax
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Experience:  EA, CEBS - 35 years experience providing financial advice
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Have a capital gain about to mature. Foreign Currency Exchange.

Resolved Question:

Have a capital gain about to mature. Foreign Currency Exchange. Asked CPA, tax laywer, and tax consultant got 3 different answers.
What is capital gain long term rate?
What is capital gain short term rate? (I have both on this one investment.
Submitted: 7 years ago.
Category: Tax
Expert:  Bill replied 7 years ago.

Is the gain from a foreign currency futures contract, an options contract, or a forex contract? Is the gain due to it's maturity or closing a position?

Customer: replied 7 years ago.
Iraq is revaluing their money I have bought Dinar - it is about to RV this week. No it is not an options contract,or a forex contract
Expert:  Bill replied 7 years ago.

According to Publication 525, if the gain on the currency is more than $200 and you have held it for more than 1 year then it would be taxed at long term capital gains rates. These rates will either be 0% or 15% (or a blended rate) depending on your marginal income tax bracket. If it was held for less than 1 year then it would be taxed as a short term capital gain.

 

See page 33 - http://www.irs.gov/pub/irs-pdf/p525.pdf

 

Customer: replied 7 years ago.

My husband and I only have social security income. Did I understand you that the long range is 0/15%. What is short term rate.

I thought more than one year is short term.

Less than one year is long term.

How much will I pay for the long term?

Expert:  Bill replied 7 years ago.
One year or less is short term. More than 1 year is long term. If your only income is social security, the gain is long term and is less than approximately $50,000, then it will tax-free as it will be taxed at 0%. However, depending on the amount of your social security benefits and the amount of the gain, some of your social security benefits may be taxable (the gain would have to exceed approximately $15,000 or more).
Expert:  Bill replied 7 years ago.
The short term capital gains rate is based on the amount of your total income and can vary from 0 - 35%. If the gain is not significant then the tax rate may be 0%. For example, if your social security benefits are $24,000, the gain is no more than $18,700, and you have no other income then the tax on the gain is 0% because of your standard deduction and personal exemptions ($11,400 plus $3,650 each).
Customer: replied 7 years ago.
I still did not get the answer I wanted. what determines the 0-35%. We get 20,000 year Social security - the return on the currency will be over a million. So does that automatically put me in the 35% range? Also my husband is 74 I thought they told us we can make as much as we want not without taxes?
Expert:  Bill replied 7 years ago.

The 0 - 35% tax rates are based on different marginal tax brackets which are determined by a taxpayer's total income, filing status, and deductions. If the gain is short term (held 1 year or less) and is over a $1 million then the bulk of it will be taxed at 35% because your total income exceeds $372,950 which is the taxable income level when the 35% bracket begins. Here is a link to the 2009 tax brackets - http://taxes.about.com/od/2009taxes/qt/2009_tax_rates.htm

 

If the gain is long term (held for more than 1 year), then it will be taxed at a maximum of 15%.

 

Income from earnings, taxable investments, and gains are taxable to all taxpayers regardless of their ages. Some extra deductions are available at age 65 to reduce or eliminate taxes but these additional reductions are relatively small.

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