Important Changes

Allocation of assets. Changes have been made to the order in which you must allocate assets in a multiple property exchange and a sale of a business occurring after March 15, 2001. See Residual group under Multiple Property Exchanges in chapter 1 and Residual method under Sale of a Business in chapter 2.

Lower capital gain tax rates. Beginning in 2001, the 10% capital gain tax rate is lowered to 8% for qualified 5-year gain.

Beginning in 2006, the 20% capital gain rate will be lowered to 18% for qualified 5-year gain from property with a holding period that begins after 2000. Taxpayers (other than corporations) can elect to treat certain assets held on January 1, 2001, as sold and then reacquired on the same date, but they must pay tax for 2001 on any resulting gain. The purpose of the election is to make any future gain on the asset eligible for the 18% rate by giving the asset a new holding period.

For the definition of "qualified 5-year gain" and information on how to make the election, see Capital Gain Tax Rates in chapter 4.

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