THE EVER-CHANGING CAPITAL GAINS TAX

First American Exchange Company
July 21, 2010 — 246 views  

Become a Bronze Member for monthly eNewsletter, articles, and white papers.

Taxes, like life, can be like riding a roller coaster. Sometimes it’s up and sometimes it’s down. This is definitely the case when speaking about the Federal capital gains rate for individuals. In the past 20 years, this tax has been as high as 28% and is currently at its low point of 15%. But, this too shall change as of January 1, 2011, when the rate is scheduled to go back to 20%.

 

As part of the 1986 Tax Reform Act, the capital gains tax rate was raised from 20% to 28%. President Clinton reduced the capital gains tax from 28% to 20% in 1997. In 2003, the Bush administration passed The Jobs and Growth Reconciliation Tax Act of 2003, which lowered the capital gains tax from 20% to 15%. This reduction was due to sunset on December 31, 2008. But, in May of 2006, Congress passed and the President signed H.R. 4297, which extended this reduction in capital gains until December 31, 2010.

To complicate matters further, the Health Care and Education Affordability Reconciliation Act of 2010 was signed by President Obama on March 30, 2010, and it includes a number of revenue-raising provisions. One of these provisions, impacting high income individuals, is a 3.8% tax increase starting in 2013 on any unearned income. Gain from the sale of real estate falls within this category.

If Congress takes no action on the existing tax rates, the maximum capital gains tax rate will increase from the current 15% level to 20% in 2011 and then to 23.8% in 2013. This would be the highest rate for long-term capital gains since 1997.  No matter what the tax, it can be deferred by completing a 1031 tax-deferred exchange. Contact your local First American Exchange office for more information. 

First American Exchange Company

First American Exchange Company, LLC

First American Exchange Company provides qualified intermediary services under Section 1031 of the Internal Revenue Code, which allows investors to exchange "like-kind" investment properties without recognizing capital gains. First American Exchange facilitates tax-deferred delayed exchanges, reverse exchanges, personal property exchanges, and build-to-suit exchanges for residential and commercial transactions through exchange offices located across the nation.