We are working on a once in our lifetime real estate deal. There will be a significant gain when all is said and done.

We are in our mid 50’s and doing good.
With the current administration looking to raise the capital gains tax what is your best guess on what the final numbers will be?

Everyone I have spoke with about this is guessing at best and the numbers are all over the place.

Everyone’s guessing because no one knows. Assuming it’s not a primary residence which can be tax free, maybe somewhere between today’s long term capital gains rate and your top marginal income rate after the gain is factored in? I’d calculate your situation for both of those extremes and plan accordingly, hoping for the best but having a plan in case it might not be that good.

I’d guess the rates will be set to 20% for the first $300K, and 30% for anything over that. Initial proposal will probably be higher than that, but will compromise to these ‘Lower’ rates so every.one will ‘win’.

I also think social security will be withheld on all income, not just the 1st $142k.

One hurdle is if we enter a contract this week it will take 9-12 months to get thru the city zoning / planning.

A lot can change in that time period and we would not be able to get out of the contract if the changes are drastic enough for us to want to wait.

You might investigate doing a 1031 tax-free exchange to defer the capital gains.

Tell us more about what you are doing exactly.
Are you selling a second home or rental?
What about a 1031 exchange if buying something for a higher price than what you are selling?

Also, are there not both state and federal cap. gains taxes?

Decision-making under uncertainty. Fun fun fun.

RE: section 1031 as suggested above. I'm sure you're tracking that, along with rate changes, Biden's plan is looking to make significant changes to 1031 rules. Another variable to consider.

Anyway, with respect to Federal tax rate estimates, one way to proceed with making sense of the various forecasts may be to factor them all into an 'expected value' to do tax planning with.

To do that, you'd list every different estimate of tax rates you feel valid and your own estimate (or that of someone you trust) of the likelihood of each. Then weight each different estimate by its likelihood and sum up the results to get an expected value.

Here's a hypothetical example of that approach (values only for ease of calculation):

Rate...Likelihood...Weighted value (rate x likelihood)
20%..... 15%......... 0.20*0.15=0.03
25%..... 50%......... 0.25*0.50=0.125
50%... _30%_.... __0.50*0.30=0.15__
.......... 100%......... exp val=0.03+.0125+0.15=0.305

So for this completely-made-up example, the expected value would be 30.5%.

I'd do this for state and local taxes, as well. For real estate, those are often significant.

None of this capital gains bullshit applies to a primary residence, right? At least up to a certain amount?

[QUOTE]Originally posted by joel9507:
Decision-making under uncertainty. Fun fun fun.

RE: section 1031 as suggested above. I'm sure you're tracking that, along with rate changes, Biden's plan is looking to make significant changes to 1031 rules. Another variable to consider.


That sums it up almost perfect

Half of the property is our primary residence the other half is a vacant lot. So a 1031 would only apply to a part of the deal.
The administration has been openly speaking about ending the 1031 as well.

Another unknown is if they do a “look back” if the law changes after a closing.

[/QUOTE] Half of the property is our primary residence the other half is a vacant lot. So a 1031 would only apply to a part of the deal.[/QUOTE]

If they are adjacent parcel's, you could absorb the vacant lot into your residence property, thus making the entire larger property 1031 eligible.

if its a commercial property and you can do a 1031 exchange without any Sec 1245 property the yes, you can defer the gains. You will need an existing property for the 1031 that is similar in scope.

quote:

Originally posted by Balzé Halzé:
None of this capital gains bullshit applies to a primary residence, right? At least up to a certain amount?

First $250k/$500k is tax free for single/married.

quote:

Originally posted by Skins2881:

quote:

Originally posted by Balzé Halzé:
None of this capital gains bullshit applies to a primary residence, right? At least up to a certain amount?

First $250k/$500k is tax free for single/married.

This. If it is a primary residence there is an exclusion.

After several “meetings” we have decided to step back and wait to see what the capital gains tax increase ends up being.

No one knows at this point what it’s going to do, so we are waiting it out.

Depending on what you are using the property for you could purchase it thru a SDIRA/LLC Self Directed IRA, Limited Liability Corp and pay ZERO capital gains. See “Mark J. Kohler” web site www.markkohler.com or his YouTube channel. He’s an attorney and CPA. This has been perfectly legal since the 1970’s.

Why wait? We are at historical low tax rates right now and they WILL go up. It may take a while to close the deal, but there is no better time than the present. If you sell later, are you going to sell for less or have less profit? I hope not. Do you think that at some point taxes will go down? I doubt it, we are 26T in debt and growing rapidly.

And what is the worst part, you pay taxes on the profit you make vs sitting on property you would prefer to sell.

...just my bumble opinion.

Why wait, it has to work for us first.
If we could close this week it’s going to take right at a million just to do the deal. Which makes me want to puke!

Doing a 1031 exchange is not an option on this deal.

With the looming unknown Capital Gains tax increases in the near future who knows what is going to happen. We would prefer to know the rules so we can make it work for us first. Any significant increase will suck up more cash out of the deal that we will need to buy a house and have a nest egg left.