The Economic Growth and Tax Relief Reconciliation Act of 2001 is set to expire at the end of this year. This was known as “The Bush Tax Cuts” that lowered the Federal capital gains tax to 15% on long term investments.
According to IPX1031, a national investment properties exchange services company which services Santa Barbara, the capital gains tax on investments will rise from 15% to 20%. Therefore, if you were to sell or “cash out” a property with a $1 million gain, you would be expected to pay an additional $50,000 in capital gains tax.
Additionally, in the beginning of next year, the 2010 Health Care Bill will also impose a 3.8% tax on passive investment income. This includes capital gains, rental income, interest and dividend income for individuals whose annual income exceeds $200,000 or married couples who file jointly and whose annual income exceeds $250,000.
An option to avoid paying capital gains and the 3.8% healthcare tax would be to do a 1031 exchange. For more information, visit www.ipx1031.com. Please consult with a tax and/or legal professional when inquiring about taxes and estate planning.
If you’re interested in an up-to-date seller’s net or buyer’s cost estimate for any properties please let me know. My consultations are free and your inquiries are appreciated.