As we begin 2012, all real estate investors need to pay very close attention to the ever changing tax landscape. Particular attention needs to be paid to the significant tax increases slated to occur in 2013. Investors considering whether or not to sell and pay their taxes, or sell and 1031 exchange, must consider the year-over-year tax implications. Real estate investors will have a much greater tax burden in 2013 than in 2012.
Tax Rate Changes for 2012 and 2013
Ordinary Income 35% 39.6%
Qualified Dividends 15% 39.6%
Capital Gains Tax 15% 20 %
(Courtesy of Delap CPA)
Beginning January 1, 2013 a new Medicare tax of 3.8% will be applied to investment income of those investors with a modified adjusted gross income of over $200,000 ($250,000 for couples filing jointly). The tax applies to the lesser of the (1) total investment income for the year, and (2) the amount by which the individual’s total income exceeds the threshold. For example, a single individual taxpayer who has $150,000 of investment income and $125,000 of other income will pay the new Medicare tax on $75,000 (the amount by which the individuals’ income exceeds the $200,000 threshold. Because the threshold amounts for the new Medicare tax are not indexed for inflation, more taxpayers will be subject to the new Medicare Tax over time.
(Ccourtesy of Jenee Hilliard, Attorney at Law, Miller Nash)
Gifting 2012 2013
Lifetime Gift Exemption $5 Million $1 Million
Top Fed Estate Tax Rate 35% 55%
Annual Gift Exclusion $13,000 $13,000
(Courtesy Delap CPA)
NOTE: Continued uncertainty regarding social security taxes: Even though the President and Congress have extended the social security tax reductions for two more months there is no guarantee that they will be continued through 2012. Under the compromise late in 2010 that extended the tax cuts by President George W. Bush, employees in 2011 are paying Social Security at a reduced rate of 4.2 percent. President Obama would like to lower the 2012 Social Security tax rate for both employers and employees to 3.1 percent, but as of this writing, it has yet to be determined if the Social Security tax rate in 2012 will revert to the usual 6.2 percent for both employers and employees.
Clifford A. Hockley is President of Bluestone & Hockley Real Estate Services, greater Portland’s full service real estate brokerage and property management company.. He is a Certified Property Manager and has achieved his Certified Commercial Investment Member designation (CCIM). Bluestone & Hockley Real Estate Services is an Accredited Management Organization (AMO) by the Institute of Real Estate Management (IREM).