FUNDAMENTALS
BUY OR SELL
Decision Time FINDING SILVER LININGS IN THE CLOUD OF CAPITAL GAINS TAX
by Eddie Speed
merica started charging income tax in 1913 and started taxing capital gains in 1916 (with a top rate for both of seven percent). From what sources tell us, the President and Congress have their sights set on raising capital gains taxes, the income earned when you sell an asset for more than you paid. The plan in Washington DC is to double the current capital gains tax on those with income over $1 million. The top rate now is around 20 percent, but they want to raise it to 39.6 per- cent plus a 3.8 percent Medicare sur- tax, making the top rate 43.4 percent. Many investors are not thrilled about the dark cloud of higher taxes. A
But this cloud is lined with silver, and I’ll explain two ways to mine it out.
consider taking some profit off the table. Your rental properties have likely appreciated in value, so if you sell now, you’ll pay half as much in capital gains taxes compared to sell- ing next year. But whether you make more than $1 million or less, could soon be losing equity should more properties flood the market and pric - es soften, it could be a good time to take money off the table by cashing in your equity. When you offer seller financing to your buyer you can get money today (as a down payment from a well-qualified buyer) plus predict - able long-term income to replace your rent checks. Another benefit
SILVER LINING #1 As any real estate investor knows, there are seller’s markets and there are buyer’s markets. But in today’s market the stars are aligning for this to be the ideal year to either sell OR buy IF you can utilize creative financing with terms in your favor. It’s all being driven by the proposed increase in capital gains tax. If you’re in the $1 million earning category and you own multiple prop- erties, it seems logical (with prices as high as they are) that you should
52 | think realty magazine :: september 2021
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