Are Capital Gains Looming for Real Estate Sales?

I’ve never met anyone that likes paying taxes, and most of us try to find ways to avoid paying more of them, but if the current Administration has their way, you may be paying a lot more when you sell your appreciated real estate assets.  To pay for nearly $2 Trillion in planned spending, President Biden is proposing significant tax increases on Americans making over $1M.  While that is only a small fraction of the population, it very likely could include you, especially if you bought your home over 20 years ago or have other investment real estate.  Here’s how the proposed taxes may impact you:

Increase the Federal Long Term Capital Gains rate to 39.6% on net income over $1M. If you are married and had no other sources of income, that could include the profit over $1.5M for the sale of your home. In California that translates to a total capital gains tax of 56.7%!

Eliminate Tax Deferred Exchanges over $500,000 – Many folks have built wealth buy buying investment real estate and exchange to better assets over time, all the while deferring capital gains taxes by doing a Like-Kind Exchange.  Under the proposed tax change, this would be eliminated for gains greater than $500,000.

Eliminate the stepped up basis on death – If you are planning on leaving your real estate assets to your heirs to avoid a huge tax hit, your plans may be foiled if you have assets in excess of $2.5M.
None of these proposed changes have been passed into law, but at a minimum it is good reason to start considering your options should these, or some form of these laws take place.  Consult your team of advisors including your accountant, lawyer, and real estate broker to get an idea of how these proposed changes may affect your wealth and retirement planning.

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