4/14/2010

Capital Gains Tax Going Up in 2011

April 15th is now upon us and soon disappearing, but for those who need to consider their capital gains, there is a window until January 1, 2011 before the 20% capital gains tax returns, after an 8-year hiatus at the 15% level.

If you have owned an investment property for more than one year, you could be subject to the long term capital gains tax, and beginning in 2013, an additional 3.8% tax on certain investment income which is subject to income tax, including capital gains, for those in higher income brackets, will also apply.

Investment property owners often consider a 1031 exchange as one method to avoid these capital gains taxes, evening combining several properties they no longer want to manage into one new property. There are certain rules and timelines governing these exchanges which must be complied with in order to obtain the IRS tax deferment.

Although California's February 2010 median sales price of a single family home has risen by over 14% from February 2009, you should find out the market activity in the immediate area of your property, because all real estate is local.  The trend could be up or down nationally, or statewide, but find out comparable prices of similar properties within the last 3 months and within one mile or less of your property.  And, even though the prices may continue upward for you, will that help you if the property has to be taxed at 20% capital gains after January 1, 2011?

For a standard chart to calculate your basis, and gain, at the 15% rate and then compare to the 20% rate, and then analyzing with and without a 1031 tax exchange, contact me. You will need certain information to make a reasonably accurate estimate, and of course, you should consult your tax advisor for specific financial calculations for your circumstances. For doing a sale and 1031 exchange, however, you will want to use a real estate professional who will provide the necessary disclosures and ability to handle the real estate transaction, and an extremely reliable and qualified intermediary for the exchange portion of the sale.

For basic information concerning exchanges, go to http://www.juliahuntsman.com/1031_Exchanges.html.

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