Done Deals: Atlanta CRE Show: 2013 Could Bring Significant Tax Increases

Monday, October 15, 2012

Atlanta CRE Show: 2013 Could Bring Significant Tax Increases

Linda Goold

ATLANTA, GA (Oct. 15, 2012) – Real estate investors could face hefty tax increases in 2013 and need to start planning now to protect their interests.

The latest episode of “America’s Commercial Real Estate Show” focused on tax strategies and gave an in-depth look at what potential tax changes lie ahead in 2013. A panel of experts shared their insights and tips to help real estate investors stretch their dollars and minimize their tax burden.

Experts say 2013 is full of uncertainty and concern about taxes.

“The great mystery is, ‘What will tax rates be in 2013?’” said Linda Goold, director of federal taxation at the National Association of Realtors.

One of the hottest topics is the capital gains tax. The U.S. Congress passed last-minute legislation in 2010 to extend the Bush-era tax cuts for two more years — and now they are set to expire again.

Ricky B. Novak

If Congress does not act by year end, the capital gains rate will go from its current level of 15 percent to 20 percent.

“We don’t have a prediction right now on what Congress is actually going to do, but I think we should prepare for the possibility of a 20 percent rate come January,” Goold noted.

There is another important tax increase on the horizon. Beginning Jan. 1, 2013, a new 3.8 percent tax on some investment income will take effect for individuals with an adjusted gross income above $200,000 and couples making more than $250,000.

Michael Bull

This new tax was passed by Congress in 2010 to help generate an estimated $210 billion to help fund “Obamacare” and the Medicare overhaul.

The formula by which the tax is calculated makes it difficult for real estate investors to determine whether they will be affected, Goold said.

Industry insiders also are watching closely to see if Congress might try to impose tax hikes on carried interest. Carried interest has historically been treated as capital gains, but the U.S. House of Representatives has passed legislation four times that would instead tax carried interest at an ordinary income rate.

Carried interest legislation has never passed the U.S. Senate, but it is still a concern — especially if there is a Democratic sweep of Congress and the White House in the upcoming election, Goold reports.

Anita Anand

With the possible capital gains tax increase and the new 3.8percent tax on investment income, experts are bracing for a bigger tax burden overall.

“You’ve got your federal capital gains rate, most states also have an effective tax rate and now you’ve got this additional increase of 8.8 percent,” said Ricky Novak, CEO of Strategic 1031 Exchange Advisors. “Essentially, you are looking at almost a 10 percent increase on the sale of an asset.”

With these taxes on the horizon as 2012 draws to a close, it’s time to assess your situation and focus on last-minute tax strategies. This means it could be time to sell certain properties before year end.

White House, Washington, DC

“If you’ve got a property with a lot of gain and you know that the tax rates are going to go up — and if they go up 10 percent that could be a huge number — you may want to see if you have time to close by the end of the year,” said show host Michael Bull, founder of Bull Realty Inc.

The time is right to think about federal and state tax credits, as well as charitable contributions — and not just cash.

“Consider donating appreciated stock — stock that has been held for over a year — because you’re going to get the fair market value of the deduction so you are getting full value from the tax perspective and then you are also going to be avoiding including the gain on that stock later on,” said Anita Anand, a senior associate at the Reznick Group.