It is impossible to turn on the cable news or the radio in San Francisco, or go online without reading, seeing or hearing about the fiscal cliff. There are just two weeks planned for Congress to be in session and the future is still murky.
If nothing is done, the so-called Bush tax cuts will expire. This is important news for a number of people, one group of whom are those who seek to sell the high-priced mansions without paying capital gains tax. Different tax planning scenarios abound as people have one price for sales which close before December 31 and another price if the closing is after January 1.
For those who may need a capital gains refresher course, here is how the situation stands -- today the capital gains tax is zero as a minimum tax depending on how long an asset was held, and there is a maximum rate of 20 percent. So it is possible to buy a house for $1 million, sell it for $2 million and pay no capital gains tax on the $1 million increase.
However, beginning January 1 (if Congress does nothing) the rates would revert back to the previous rates of a minimum 10 percent federal tax on long-term gains and the cap would be raised from 15 percent to 20 percent.
This may not be a problem for many people who are more recent home buyers, because the market has gone down in recent years rather than up. According to real estate sources, homes sales at $1 million or more were up more than 23 percent compared to last year, although the average sales price was down 12 percent.
This seems to mean that more people are selling and are taking less than their original asking price. Perhaps it is to avoid the capital gains tax?
Source: Business Insider, "The Impending Capital Gains Tax Hike Has Mansion Owners Scrambling To Sell," Meredith Galante, Nov. 16, 2012
- At our San Francisco law office, we represent clients with tax issues including those dealing with capital gains taxes.