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Capital Gains Tax Break Extended

New law also renews lower rates for dividend income, for two years

Q. My wife and I use our investment income to supplement our Social Security benefits. Times are tough, and we're considering selling some of our shares, which have appreciated nicely over the years. What are the tax implications?

Capital gains

Bilderbox / age fotostock

A. You're in luck. For this year and next, investors will continue to get a tax break on capital gains and dividend income, thanks to the tax legislation passed by Congress and signed into law last December.

The law extends for two years the current, and historically low, 15 percent tax rate on long-term capital gains and dividends.

But if you and your wife together earn less than $69,000 (including capital gains income), the news is even better: The tax rate remains at zero.

These rates will stay in place through Dec. 31, 2012.

In 2013, the rate on long-term gains is scheduled to rise to 20 percent (or 10 percent if a taxpayer is in the 15 percent tax bracket), although Congress might decide differently. Dividends are expected to be taxed at the rate for whatever tax bracket you are in.

You may wish to consult a tax adviser for more details.

Carole Fleck is a senior editor at the AARP Bulletin.