It’s December 2012 and January 2013 is not that far away now.

And, if you’ve become numb to all the articles warning about stock price collapse & unemployment increases then you’ve probably not focused on something quite important… your own situation! Well, unless you have a lot of stocks that are not covered by Roth IRA’s or other tax-protected investment vehicles.

I’m talking about real estate investments that you own that you might have been thinking of selling. In fact, it could be on the market right now. Or, you might already have a contract on it.

This is the deal though…. if you think you’re going to be making a capital gain on the sale, you should try your best to complete that sale before the 1st January 2013. Why? Let’s take a look at the implications:

2012 Tax Rates

– Capital Gains Tax Rate: 15%

– Top Marginal Tax Rate: 35%

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2013 Tax Rates

– Capital Gains Tax Rate: 20%

– Top Marginal Tax Rate: 39.6%

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Here’s the kicker

But, and here’s the kicker, if you are “wealthy” (i.e. married filing jointly & earning over $250,000 per year) then you will have to pay an additional 3.8% of your capital gain towards Medicare Tax!!! So, your capital gain in 2013 could easily be taxed at 23.8%. That’s a 59% increase in the capital gains tax rate in 2013! (Boy, if any business tried to increase their prices in one shot with a jump like that I think they’d probably go out of business!)

I actually have been working with a couple that’s considering selling some property and their capital gain would be in the region of $450,000. So, selling before January their capital gains tax is easy to work out… 15% of $450,000 = $67,500.

But, if they sell after the 31st December 2012, their tax could be $450,000 x 20% + $450,000 x 3.8% Medicare Tax => $90,000 + $17,100 = $107,100. That’s a $39,600 difference! Nothing to sneeze at. Actually, it’s close to the average wage for a US worker (in 2011 – $42,979).

So, make a move… Sell Now!

So… if you want to sell some property or you’ve been thinking about selling or you’ve listed your property and you’ve received no offers or you have an offer and you’re thinking about whether to accept it or you’ve accepted an offer and you’re waiting to close….

In all instances, do what you can to speed up the process….. list your property, reduce the asking price (if no offers received), accept a good offer (if you’ve been hesitating), make sure you close before 31st December 2012 (if you’re already under contract).

It could be worth a lot of money to you and you might even want to consider monetary incentives to “grease the wheels” and keep things moving quickly. Don’t think that a lot is going to happen between Christmas and New Year…. most people are going to be out of the office. So, if your deal is hanging on banks or appraisals or surveys or any other sort of third-party action…. make sure you call them every few days starting the first week of December 2012 and have them give you dates by when you should expect results. If you leave it open-ended, you could be closing your deal in January and that’s going to cost you….. hopefully not almost $40,000 but anything more than you have to is coming out of your pocket.

There is a very small chance that all these tax hits are not going to happen but don’t hold your breath….. Obama has said numerous times very publicly that the taxes on “the wealthy” are the least negotiable of all of the “fiscal cliff” items.

As Zig Ziglar said “Money is not all that important by it ranks right up there with oxygen”! 🙂 So…. if you’re concerned about these tax implications and you’re going to or were thinking about selling anyway, do something now.

Lance Langenhoven, CCIM

Commercial Broker

832-483 8655