Tax law changes passed in 2003 regarding the capital gains tax might provide a unique opportunity for some taxpayers to sell their stocks basically tax free.

When President Bush signed his tax cut laws in 2003, a provision written into the laws allows taxpayers who fall into the 10% or 15% tax brackets to earn capital gains basically tax free from 2008 until 2010.

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Capital gains taxes are paid on profits from investments, usually from the sale of stocks, bonds or property.

While it sounds lucrative, the limitations on how much a taxpayer can earn under this law makes the benefit limited to only certain qualified individuals, according to tax professionals and financial planners.

“It’s worth looking into, but for the middle-class citizen, it’s not going to matter that much,” said Tom Ochsenschlager, vice president of taxation at the American Institute of Certified Public Accountants.

The key issue to remember about this benefit is the income limitations: a married couple filing jointly can only have less than $65,100 in income in order to qualify, for individual filers, the amount is $32,550. Most people will not qualify  for the 0% capital gains because the income from their jobs, usually reported as W-2 income, will most likely reach or exceed that amount, advisers said.

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Also, the benefit applies only to qualified dividends or what's known as "long term capital gains"--or securities owned for at least one year.

The people most likely to benefit are the elderly and young professionals. An elderly couple living exclusively off Social Security, which is usually tax-free income, may be able to sell stock or collect dividends tax free.

“We get a lot of retired clients, and we’re telling them about this tax benefit because often senior citizens have the ability to pull income from various sources,” said Scott Tiras, a senior financial planner with Ameriprise in Houston. “They’ll really stand to benefit the most.”

Also, a young professional who may not make a lot of money, may have a “cushion” of room they could use to sell stock and still be under the $32,550 mark.

Despite the 0% tax rate on capital gains, it’s only a small difference in what the tax was previously for people in these income brackets. Before it dropped to 0%, the Bush tax cuts had made the capital gains tax 5% from 2003 to 2007 - so the tax savings is not incredibly significant.

Tiras said that he’s recommending this tax benefit to his clients especially with the market being down significantly in 2008. If a taxpayer has owned stocks for several years and are still up in those positions, this might be a time to sell and get the better tax benefit.

“While the general rule we like to say is don’t chase the tax benefit when you can chase the stocks, this for some people, is a good opportunity,” he said.

There isn’t a rush to participate as well – because the 0% rule applies through 2010. However, with the possibility of a Democratic president and an already Democratic Congress calling for “rolling back” the Bush tax cuts, there is a possibility these tax benefits might be closed in 2009 or 2010.

Also, don't expect to give your stocks to your children in order for them to possibly get the tax benefit. Last year, Congress expanded what's known commonly as the "kiddie tax" to close this loophole. Now, child dependents under 18 or students under 24 who earn more than $1,800 in unearned income, which usually includes capital gains, are taxed at their parents' tax rate.

However, parents could give stocks to their children who are not in school or are in the beginning stages of their career and may not make enough money to rise above the $32,550 mark, Tiras said.

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