15% Capital Gains Tax Rate To Fade Into History

Welcome to Real Estate Strategies, Inc. first blog.  We will blog tips and helpful information on our website dedicated to making ownership of commercial real estate less complicated and more profitable.

Let’s say you own commercial real estate that you have owned for five or more years and you want to sell it to fund retirement (or something else) using the profit from the sale.  But with the market so slow, a sale this year probably means a sizeable discount on your property’s value and hence, your profit.  So, you have been sitting on the sidelines.

Sales of most commercial real estate are subject to long term capital gains tax (tax on the profit made over the investment, or basis, in the property).If you have a low basis (the property cost plus acquisition expenses) in the real estate, it may make sense to sell in 2010.

Here’s why.  Although real estate lobbyists are trying hard to prevent it from happening, it is highly unlikely that Congress will allow the current 15% rate on gain on sale to remain in place when it expires on January 1, 2011. The sheer scale of our national debt indicates taxes of any sort will increase. The best we can hope for appears to be minimal (say 5%) annual increases in the capital gains tax rate until it gets close to 40%. If you wait until next year, you will likely pay the government at least 20% of your profits – maybe more.

Delaying your sale another year is a gamble on what Congress might do to capital gains rates (a bad gamble!) and on whether real estate valuations will increase in the near term (another bad gamble!).  Think long and hard about those gambles and whether they are worth the risk.

Susan Lawrence is president of Real Estate Strategies, Inc. based in Winter Park, Florida.  The company’s experts assist commercial real estate owners, trusts, lenders, private equity companies and foundations in evaluating and developing strategies for commercial real estate investments. Additional information on qualifications and services may be found by visiting www.restrategies.net.

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