Monday, January 19, 2015

Capital Gains Tax Increase? Still want to be a landlord??


For crying out loud, I just woke up to hear that President Obama is going to propose a significant bump in the capital gains tax in his "state of the union address" tomorrow night.  In fact, the news anchor's speculation is that he will propose a raise from 15% to 28%.  That's what President Reagan did during his term.

Who in the world will want to invest in America with a tax rate of 28%?

More importantly, what about those of us who own rental properties or invest in real estate?  If you sell it, your tax rate will jump significantly.

Consider you own a rent house that you paid $100,000 for.  You've spent $30,000 to remodel it, so you now have an investment "basis" of $130,000.  You've taken depreciation over the last few years, so your basis is now $110,000.  You sell it for the new market value of $150,000 . . . and boom . . . capital gain of $40,000 (less selling expenses).

Current capital gains rate:  40,000 x 15% = $6,000 tax due.

Speculative capital gains rate:  40,000 x 28% = $11,200 tax due.  (Really?)

(Note that this probably doesn't affect your primary residence which is exempted in gain for the first $250,000 for a single person, $500,000 for a couple.)

But what about those people who decided to rent rather than sell in the last few years?  Now you want to sell?  Do it NOW before this tax rate hits you.  Call me, I'll help you figure this out, as I'm in the same boat.

Ugh . . . moral of this story:  Uncle Sam is your business partner and he gets paid first.  Taxes always go up.  After Reagan, capital gains were lowered, but other taxes were raised.  (What if government had to run like a business?  When I'm short on dough, I have to cut spending......hmmm.....novel idea.)

Sam Ferreri is a 40-year veteran of the real estate industry, and has bought, sold, and brokered nearly 10,000 single family houses in his career.  832-200-5656   RE/MAX Top Realty