0% Capital Gains? Maybe it's time to sell those rental properties! Or maybe not...

Real Estate Agent with Century 21 Camco Realty

2008 might be a great year for many Americans to sell investments, including investment real estate as well as stocks and other assets. Here's why:

A change to the tax code mandated by the Jobs and Growth Tax Relief and Reconciliation Act of 2003 means that

the tax on long-term capital gains will drop to zero percent for Americans in the two lowest tax brackets!

capital gainsA recent article in the Albuquerque Journal highlighted this too-little-known provision of the tax code. Some quick checking on the Internet confirmed that this really does seem to be the case, so this might be a great time for middle-income investors to sell investment property that has appreciated substantially. Those who have held a rental property for several years have pretty certainly seen some significant appreciation over the past few years, and this may just be the time when they can access that capital without paying any income tax on it!

According to http://www.investopedia.com/, these tax cuts "provide middle-income investors with a can't -miss tax planning opportunity. The zero capitals gains applies to taxpayers in the 10% and 15% tax brackets. According to the Albuquerque Journal article, the threshold income to qualify in 2008 will be 32,550 for single taxpayers and $65,100 for married couples. This tax cut is currently slated to continue through 2010, but some analysts caution that legislators could tinker further with this provision, as well as other items in the code, for future years. So 2008 might be the time to consider selling.

As always, the tax code is complex and confusing, and you absolutely need to consult a competent tax accountant for advice on how, or whether, these provisions would apply to you. And be careful!  Based on information I was able to find on a number of sites (see http://www.clevelandwomen.com/pro/citax-110507.htm for example), the zero percent does NOT apply to depreciation recapture, which is taxed at a higher rate than ordinary long-term capital gains! Depreciation recapture refers to the process by which investors depreciate real estate each year, which cuts down the amount of tax they might otherwise pay in that year, but are required by the IRS to "recapture" all that accumulated depreciation when they sell the property, paying all the tax on it in the year of sale. These unrecaptured IRC Section 1250 gains get taxed at a much higher rate.

So, beware of the pitfalls, and consult a good accountant about whether this "zero percent capital gains tax" will really apply to your situation. If you're among those few who do fit all the criteria, it just might be your lucky year for selling that rental!


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Kurt Vierheller
Flagstar Bank - Wilmington, NC
Very informative post. We have a ton of investors selling their homes in the Charlotte area. It is proving to be a lucrative move and has helped all that are involved with those sales. I will share this info with some of my investors...thanks!
Jan 07, 2008 02:37 PM #1
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Laura Warden Nordin

30-year Top Producer in Greater ABQ Real Estate
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