Mid Atlantic Real Estate Journal — 1031 Exchange — March 15 - 28, 2013 — 23A
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1031 E xchange
By Scott Saunders and Pamela A. Michaels, Esquire, Asset Preservation, Inc. Performa §1031 Exchanges to defer the new 3.8% Medicare Surtax Tax and 20% Capital Gain Tax
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and $250,000 for married couples filing jointly. Pursu- ant to IRC Section 1411, “net investment income” includes interest, dividends, capital gains, retirement income and income from partnerships (as well as other forms of “unearned income”). 4) State Taxes: Taxpayers must also take into account the applicable state tax, if any, to determine their total tax owed. In the Northeast, that rate generally ranges from 6-8%. 5) Local Taxes: Any tax- payers residing in NYC or continued on page 26A
nder the American Taxpayer Re l i e f Act of 2012, the top
capital gain tax rate has b e en pe r - ma n e n t l y i n c r e a s e d to 20% (up from 15%) for single fil- ers with in- comes above $ 4 0 0 , 0 0 0 a n d ma r - r i e d c o u - ples filing jointly with i n c o m e s e x c e e d i ng $ 4 5 0 , 0 0 0 . In addition, the new IRC
Scott Saunders
Pamela Michaels
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Section 1411 3.8% Medicare surtax on net investment in- come, which includes capital gains, results in an overall rate for higher-income tax- payers of 23.8% -- a stagger- ing 58% increase from 2012 tax rates! Steps Involved in Deter- mining Capital Gain Taxation Absent the tax deferral benefits of a 1031 exchange, below is a summary of the ways investors will be taxed on the sale of an investment property: 1) Depreciation Recap- ture: Taxpayers will be taxed at a rate of 25% on all depre- ciation recapture. 2) Federal Capital Gain Taxes: Investors owe Fed- eral capital gain taxes on the remaining economic gain depending upon their tax- able income. Since a new higher capital gain tax rate of 20% has been added to the tax code, investors exceeding the $400,000 taxable income threshold for single filers and married couples filing jointly with over $450,000 in tax- able income will be subject to the new higher tax rate. The previous Federal capital gain tax rate of 15% remains for investors below these thresh- old income amounts. 3) New Medicare Surtax Pursuant to IRC Section 1411: The Health Care and Education ReconciliationAct of 2010 added a new 3.8% Medicare Surtax on “net in- vestment income.” This 3.8% Medicare surtax applies to taxpayers with “net invest- ment income” who exceed threshold income amounts of $200,000 for single filers
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