Nov

12

Upcoming Changes in Capital Gains Tax

Filed Under Government 

What is Capital Gains Tax? When a taxpayer sells assets that have been held for more than a year and one day (366 days) the taxpayer is subject to capital gains taxes.

The rates are currently as follows:

Long Term Capital Gain – Since 2003, the rate for Long Term Capital Gain has been 15% (lowered from 20%) for taxpayers in the 25% income tax bracket or higher. For taxpayers in the lower income tax brackets (10% and 15%), the rate has been lowered to 5% from 10%.

In 2008, the 15% rate has remained the same; however, the 5% rate has been reduced to zero! In order to qualify for this rate, a married couple may make no more than $65,100 annually or $32,550 annually for single filers.

These rates are scheduled to remain through the end of 2010 as outlined in the Tax Increase Prevention and Reconciliation Act of 2006. In 2011, the capital gain rates are scheduled to return to the previous rates of 20% and 10%. Although these rates are scheduled to increase to 20% in 2011, many experts believe the future tax rates will be changed more significantly due to the outcome of the recent Presidential Election. President-Elect Obama has stated that he is in favor of increasing capital gains tax to 25%.

State Rate – In addition to the Federal capital gains tax, each state has individual capital gains rates. In some states, there are no capital gains taxes (tax rate is determined by the state in which the real estate is sold). It is advisable to check with one’s own tax advisor to determine the appropriate rate.

Depreciation Recapture – There is also a 25% tax rate also known as Depreciation Recapture. This rate applies to the portion of real estate that has been depreciated.

In the interim, we will have to standby until Congress addresses the issues surrounding capital gains. Whatever the proposed tax changes may be, one of the best ways to successfully navigate around capital gains tax is simply to utilize a §1031 Tax-Deferred Exchange.

Compliments of:
Whitney Brennan
www.ncs1031.com

If you enjoyed this post, make sure you subscribe to our RSS feed!

Comments

Leave a Reply