Capital Gain Tax Increases Coming

Look out ahead, folks! Regardless of what you think of the health care "reform" that passed the House of Representatives yesterday (and I guess the quotes make it clear what I think of it), it will have a huge impact on those of us who call ourselves investors.

Within the thousands of pages of legislation, there is a small provision with a significant effect. It is a 3.8% "Medicare payroll tax" on capital gains and other investments. This increases the capital gain rate from its present 15% to 18.8%. **Please see 4/8/10 update at bottom.** Bad, but perhaps tolerable, you may think. However, in addition to this 3.8% surcharge, at the end of 2010 the capital gain rate is set to increase from 15% to 20% due to the expiration of the Bush tax cuts. Combined with the 3.8% Medicare boost, that results in a new capital gain tax rate starting January 1, 2011 of 23.8%! **Please see 4/8/10 update at bottom.** If you do the math, you'll see that this represents a almost a 60% increase in the capital gain rate versus the present 15%!

Today I have to tell you that if you were ever thinking of selling your investment real estate without using a 1031 exchange, now might be the time to do it. I don't believe that you will be able to avoid the 3.8% surcharge; that will likely go into effect as soon as President Obama signs the bill, which appears to be scheduled in the next day or two. **Please see 4/8/10 update at bottom.** But you can avoid the 5% increase that happens at the end of 2010 if you close prior to December 31, 2010. Of course, you can avoid paying all of those taxes today by utiliziing a Section 1031 exchange.

If you have questions, please feel free to get in touch. This is a fluid situation, so I won't claim to have all of the answers, but I'll do my best to find out for you.

**4/8/10 - I've been trying to get definitive word on when the 3.8% increase goes into effect without any luck until today. I broke down and read the bill itself for the information. (Not the entire 3,000 pages, mind you; just the pertinent section.) The increase takes effect on 1/1/2013, so it is not quite as onerous as I originally suspected. Some solice, I guess.

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Please consider IOWA EQUITY EXCHANGE as your trusted source for answers to your questions about Section 1031 like-kind tax-deferred exchanges. Contact us at your convenience for prompt, accurate information. Please think of us for your next exchange.

Ken Tharp

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