Forecasting Capital Gain Rates

A recent Wall Street Journal has an article entitled Property Investors Fear Gains-Tax Rise, Shift 1031 Strategy.

Read the article here: https://online.wsj.com/article/SB120528549398629221.html

Anticipating a change in the administration and an increasingly Democratic Congress, real estate investors are concerned about a possible hike in capital gain rates. The Journal notes an increasing rate of investors moving away from 1031 exchanges and implementing taxable sales.

Will the gamble pay off? Today’s rate of 15% is certainly low, by historical standards. If in a couple of years the rate jumps to 20-25%, selling today at a 15% rate certainly makes sense. Because almost no one anticipates the rate coming down, this may be a strategy worth considering.

The rates are also important to consider when selling on an installment basis, as each installment payment will be subject to the tax rates applicable at the time the payment is made. There may be a growing trend in the coming years of sellers repaying installment notes early, to get ahead of a possible rate hike.

The move away from 1031 exchanges also makes certain tax deferral transactions a more attractive option to consider, but one has to be mindful of pushing the tax liability into a later year when the rate may be higher.