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gain subject to a section 1(h) tax rate of 25 percent.
Petitioners assert that long-term capital gains are taxed at
a maximum 20-percent rate; therefore, the entire gain from the
sale of their investment property should be taxed at only 20
percent. While the Taxpayer Relief Act of 1997 (1997 Act), Pub.
L. 105-34, sec. 311, 111 Stat. 831, did reduce the maximum
capital gains rate on net capital gains from 28 percent to 20
percent, petitioners’ assertion fails to take into consideration
all of the relevant changes made by the 1997 Act.
The 1997 Act made several changes to the capital gains tax.
For the 1997 tax year, the capital gains tax rates vary depending
on the type, nature, and amount of the gain. In addition, the
length of time the asset was held before its disposition and the
date of the disposition affect the capital gains tax rates for
1997. Section 1(h), in pertinent part, provides as follows:
SEC. 1(h). Maximum Capital Gains Rate.-–
(1) In general.--If a taxpayer has a net capital gain
for any taxable year, the tax imposed by this section for
such taxable year shall not exceed the sum of--
(A) a tax computed at the rates and in the same
manner as if this subsection had not been enacted on
the greater of--
(i) taxable income reduced by the net capital
gain, or
(ii) the lesser of--
(I) the amount of taxable income taxed
at a rate below 28 percent, or
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