GlobeSt.com featured Manatt's Tom Muller, co-chair of the firm's Real Estate & Land Use Practice, in an article focusing on the expiring capital-gains tax. The publication turned to Muller for insight into the steps investors should take before rates go up in 2013.
GlobeSt.com reports that the expiration date on the current capital-gains tax is quickly approaching, and according to Muller, completing sales before year-end and setting up 1031 deferred exchanges are two avenues that investors should consider in order to avoid paying the higher rates.
"It depends on what you think is going to happen next year and in the coming years, but the president has made it clear that he wants a tax-reform bill in place by August 2013, so there is agreement on both sides of the aisle that some kind of reform is needed," said Muller.
Muller thinks there will be some agreement made, and there is an overriding belief that capital-gains rates may be higher than today. "They are currently at 15% now, which is advantageous; it's as good as it's ever been under the US tax code."
One smart move would be to step up the pace on property sales so that closings occur before year end. "The key is for properties that you anticipate you may want to sell in the next year or so, consider accelerating the sale so that it happens under today's 15% capital-gains regime rather than the future unknown capital-gains regime," Muller recommends.
Another route for property holders is to set up 1031 deferred exchanges that position owners not to be subject to increased capital-gains rates. "Not that many people know that the IRS has blessed, via a series of rulings, the concept of doing a 1031 exchange even with parties related to the taxpayer trying to unload a property," Muller explains. "If you have properties with a low basis and you may want to sell them in the foreseeable future, it's wise to restructure ownership so that in the fullness of time it will allow you to transfer that low basis to a high-basis property you want to keep. This will help you avoid the anticipated high capital-gains tax."
Read the article here.