Forecasting Capital Gains Rates

Jacob Stein Esq.
April 7, 2008 — 1,230 views  
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On March 12, 2008, Wall Street Journal had an article entitled Property Investors Fear Gains-Tax Rise, Shift 1031 Strategy. Anticipating a change in the administration and an increasingly Democratic Congress, real estate investors are concerned about a possible hike in capital gain rates.  The Journal noted an increasing rate of investors moving away from 1031 exchanges and implementing taxable sales. Will the gamble pay off?  Today’s rate of 15% is certainly low, by historical standards.  If in a couple of years the rate jumps to 20-25%, selling today at a 15% rate certainly makes sense.  Because almost no one anticipates the rate coming down, this may be a strategy worth considering. The rates are also important to consider when selling on an installment basis, as each installment payment will be subject to the tax rates applicable at the time the payment is made.  There may be a growing trend in the coming years of sellers repaying installment notes early, to get ahead of a possible rate hike. The move away from 1031 exchanges also makes certain tax deferral transactions a more attractive option to consider, but one has to be mindful of pushing the tax liability into a later year when the rate may be higher.

Jacob Stein Esq.

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Mr. Stein is a partner with the law firm Boldra, Klueger and Stein, LLP, in Los Angeles, California. The firm's practice is limited to asset protection, domestic and international tax planning, and structuring complex business transactions. The firm's goal is to provide the highest quality legal work that is usually associated with only the biggest law firms, in a boutique firm setting. Jacob received his law degree from the University of Southern California, and his Master's of Law in Taxation from Georgetown University. Mr. Stein has been accredited by the State Bar of California as a Certified Tax Law Specialist and is AV-rated (highest possible rating) by Martindale-Hubbell.