Magazine article Journal of Property Management

Congress Considers Changes in Capital Gains and Depreciation Recapture

Magazine article Journal of Property Management

Congress Considers Changes in Capital Gains and Depreciation Recapture

Article excerpt

Under current law, capital gains are taxed at a maximum rate of 15 percent. This rate is temporary and will revert to 20 per-cent as of January 1, 2011. When capital gains tax rates were reduced to 15 percent from 20 percent in 2003, the deprecia-tion recapture rate remained at 25 percent.

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Favorable capital gains tax rates provide a stimulus for owners wishing to sell appreciated property. Lower rates relieve the so-called lock-in effect, in which taxpayers are unwilling to sell property because of high tax costs associated with sales. Lower capital gains rates also partly mitigate the built-in gain that arises from inflation.

The "gain" on the sale of real estate often is due to extrinsic factors--not excessive tax depreciation. Gains in real estate often are attributable to inflation; appreciation in the value of the land; road and other transportation improvements; as well as the marketplace and economy in general. Applying a recapture rate to this appreciation higher than the capital gain rate is inappropriate because the appreciation is capital gain. …

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