| Our oft reviled President Bush helped pass significant | | | | structure past 2010. However, McCain voted "no" on |
| tax reduction bills in both 2001 and in 2003. The 2003 | | | | both the 2001 and 2003 tax rate reduction bills. So |
| bill lowered the maximum tax rate on long term (capital | | | | realistically, the likelihood of the 15% dividend tax rate |
| assets held more than one year) from 20% to 15%. | | | | and capital-gains tax rate remaining past 2008 is |
| The maximum tax rate on corporate dividends was | | | | perhaps less than 50-50 at this point. The Danger |
| lowered even further from a maximum tax rate of | | | | When Bill Clinton signed his big tax increase bill in 1993, |
| 38.6% to 15%. Maximum tax rate on all income was | | | | the economy had been expanding for more than two |
| lowered from 38.6% to 35%. Capital asset investors | | | | years, and was able to power through the negative |
| (stocks, bonds, real estate etc.) seem comfortable with | | | | economic impact of the hikes. In 2009, the United |
| the idea that the existing tax rates on dividends, capital | | | | States might be just emerging from a nasty downturn. |
| gains and earned income will stick around until at least | | | | Based on history, an increase in the capital gains tax |
| the end of 2010--their scheduled expiration date. The | | | | would cause a net decrease in tax revenue at the |
| odds of that occurring are, at best, 50-50 at this point. | | | | very time when business needs to be stimulated! All |
| Tax policy can be structured to achieve one or more | | | | candidates must take this into account when |
| of these three goals: | | | | considering a tax increase. |
| | | | Real Estate Investment Impact |
| 1. To provide government services to citizens; | | | | Any increase in tax rate means more total dollars in |
| 2. To direct capital expenditures within the economy; | | | | the hands of government and less in the hands of the |
| 3. To redistribute wealth from those who have it to | | | | private sector. In general, this will mean increased |
| those who don't. | | | | challenges to holding onto your hard won wealth. What |
| Democratic candidates for president have not | | | | is your best strategy in this market? For Real Estate |
| disavowed the trial balloons by Democratic members | | | | investors, Section 1031 of the IRS tax code is one of |
| of Congress to hike tax rates. What this means | | | | the last bastions of legal tax reduction. A 1031 |
| Investors can expect higher tax rates post-2008 | | | | exchange allows you to exchange your existing |
| should a Democrat become president. None of the | | | | property for another property and defer paying the |
| Democratic candidates for president has articulated a | | | | capital gains tax. As the capital gains tax rate |
| private sector pro-growth tax policy. Instead, their | | | | increases, the value of doing a 1031 exchange |
| orientation appears to be toward wealth redistribution | | | | becomes more valuable to the investor! Tax deferral |
| via higher tax rates. During the recent debate between | | | | under section 1031 can mean tax avoidance over time. |
| Democratic politicians, Obama indicated that he | | | | Think of the tax deferred under a Section 1031 |
| wanted to almost double the maximum tax rate on | | | | exchange as an interest free loan from the |
| capital gains from 15% to 28%. Clinton has stated that | | | | government--just what is needed in these unsettled |
| her maximum tax rate on capital gains would be 20%. | | | | times! |
| Both of these candidates have indicated a willingness | | | | Embedded in Section 1031 are creative tax planning |
| to raise taxes on dividends and on income of other | | | | opportunities. The capital gain tax calculator found at |
| categories. The existing tax rates are history | | | | Election Calculator, will let you estimate the possible |
| post-2008 should a Democrat win control of the White | | | | impact of the increased taxes on a real estate |
| House in this fall's election. That message is clear from | | | | investment and the value of using the Section 1031 |
| Democrats on the House Ways and Means | | | | exchange. Remember to work with a Qualified |
| Committee who have already released a plan to hike | | | | Intermediary who is bonded and insured. You can |
| personal tax rates. | | | | create a winning strategy, regardless of who wins the |
| On the other side is McCain, who has recently stated | | | | 2008 Presidential Election! |
| his support for extending the present tax-rate | | | | |