If you or your clients are single and earn over $200,000 or are a couple who earns over $250,000, the new Medicare tax on investment income will increase your capital gains tax and your taxes on stock dividends from 15 percent to 24 percent. That is a whopping 60 percent increase over the current levels.
The Bush tax cuts will be ending at the end of 2010. For anyone who is selling a luxury single family residence where they will net more than the $500,000 that they can legally keep from the sale, 2010 or 2011 is probably the best time to sell. The reason is that the Capital gains taxes will increase from 15 percent in 2010 to 20 percent in 2011. (That's a 33 percent increase in the tax rate.)
Additional Medicare taxes that will kick in in 2013 include an extra 0.9 percent of any W-2 income plus 3.8 percent on investment income.
For savvy investors and luxury homeowners, there is another option, especially for those who own multiple luxury residences. The current laws allow owners to keep $500,000 in profits (for couples, $250,000 for singles) from the sale of their primary residences. One strategy is to change primary residences every two two years, holding it long enough to qualify for the $500,000 tax free exemption.
Another strategy, provided they don't change the laws, is to rent out these properties and then do a series of 1031 exchanges that allow you to defer your taxes to a later date. If you're of the opinion that the electorate will force Congress to repeal the current legislation, then the delay tactic may be a wise choice. On the other hand, it you believe these tax increases are here to stay, getting rid of your excess inventory now may be a wise idea.
Posted by Bernice Ross, RealEstateCoachRadio.com--Just named "New and Notable" by iTunes! Check it out--it only takes 5 minutes a day to get the best training and ideas from the best speakers in the industry.