Monday, February 13, 2012

Capital Gains Rates Rising

No matter who wins the 2012 Presidential election, capital gain tax rates are rising.

And rising significantly.  The real distinction between earned income and capital gains is lost on the general public and the tax break that prevents income from being taxed twice may be doomed.

Stock market investors can time buy and sell decisions with great ease.  Real estate investors cannot.  This paradigm assures that if you want to take a gain take it before a new U.S. President is sworn into office.

The simple fact is that the Federal government is broke but has the appetite for tax money that a teenage boy has for girls, fast cars, and pizza.

President Obama released his 2013 budget today.  Read how he wants capital gains taxed at ordinary income rates and impose the "Buffett Rule" as a way of eliminating the hated Alternative Minimum Tax.  Have you forgotten the upcoming 3.8% Medicare tax on net investment income that was passed as part of Mr. Obama's health care law and also begins in 2013?

Real estate investors, take notice.

You are the 1%.  The 99% are coming after you, not with pitchforks and torches like the peasants in some old Frankenstein movie, but with higher tax rates and sanctimonious lessons on the need to "pay your fair share."

You are in the crosshairs of local, state, and Federal tax authorities that want more of your money starting January 1, 2013.  No matter the winner, blue state or red, the public coffers are empty and need filling.

Act now to shelter income, make gifts, or sell what you can before higher rates hit.

Future investments in real estate should also consider higher taxes on rental income and capital gains when calculating expected yield.  Current rates, or even inflation adjusted current rates, won't do it.