1031 Exchange

On May 21st, 2003, Congress reached an agreement on the 2003 tax custs sought by President Bush. Although Congress's approved plan contains only half the proposed tax cuts outlined in President Bush's original package, on Wednesday, May 28th, 2003, the President signed into law the $350 billion tax bill offering $330 billion in tax breaks to families, businesses, and investors and $20 billion in state aid.

Included in the new tax law is a reduction of the long-term capital gains tax. Specifically, under the new legislation, the highest tax rate on long-term capital gains is now on 15% compared to the previous 20%. Furthermore, for those individual who occupy the 10% and 15% tax brackets, the long-term capital gains tax is now 5%. The new rates are retroactive to May 6 2003. Gains included in installment payments received on after May 6, 2003 from earlier transaction are also eligible for the new 15%/5% rates.

Investors should be aware, however, that the gain attributable to depreciation deductions claimed against property (i.e. unrecaptured Section 1250 gain) is still taxed at a maximum of 25%, as under prior law, and short term capital gains (i.e., those held for one year or less) remain taxable at prior rates.

In short, although the tax cut is positive, investors should keep in mind that the overall combined effect of federal and state taxes along with the depreciation recapture tax rate keep IRC section 1031 a valuable investment tool. Moreover, investors should recognize the many non-tax benefits offered by a section 1031 exchange such as the ability to consolidate or diversify investments: the ability to realign a real estate investment portfolio; the ability to increase investment property cash flow; the ability to relocate a business; and the ability to increase investment leverage.

Disclosure Note: This information is subject to interpretation and meant to help the consumer understand information surrounding a transactional nature for 1031 exchange. It is important to seek specific and individual guidance and information from you financial advisor. This information is merely an overview and is not intended to be exhaustive. Consult with your tax advisor to determine whether an exchange is appropriate for your circumstances.

1031 Exchange - Capital Gains

The 2003 Capital Gains Reduction


	1031 Exchange - Capital Gains
	The 2003 Capital Gains Reduction
	On May 21st, 2003, Congress reached an agreement on the 2003 tax custs sought by President Bush. Although Congress's approved plan contains only half the proposed tax cuts outlined in President Bush's original package, on Wednesday, May 28th, 2003, the President signed into law the $350 billion tax bill offering $330 billion in tax breaks to families, businesses, and investors and $20 billion in state aid. Included in the new tax law is a reduction of the long-term capital gains tax. Specifically, under the new legislation, the highest tax rate on long-term capital gains is now on 15% compared to the previous 20%. Furthermore, for those individual who occupy the 10% and 15% tax brackets, the long-term capital gains tax is now 5%. The new rates are retroactive to May 6 2003. Gains included in installment payments received on after May 6, 2003 from earlier transaction are also eligible for the new 15%/5% rates. Investors should be aware, however, that the gain attributable to depreciation deductions claimed against property (i.e. unrecaptured Section 1250 gain) is still taxed at a maximum of 25%, as under prior law, and short term capital gains (i.e., those held for one year or less) remain taxable at prior rates. In short, although the tax cut is positive, investors should keep in mind that the overall combined effect of federal and state taxes along with the depreciation recapture tax rate keep IRC section 1031 a valuable investment tool. Moreover, investors should recognize the many non-tax benefits offered by a section 1031 exchange such as the ability to consolidate or diversify investments: the ability to realign a real estate investment portfolio; the ability to increase investment property cash flow; the ability to relocate a business; and the ability to increase investment leverage. Disclosure Note: This information is subject to interpretation and meant to help the consumer understand information surrounding a transactional nature for 1031 exchange. It is important to seek specific and individual guidance and information from you financial advisor. This information is merely an overview and is not intended to be exhaustive. Consult with your tax advisor to determine whether an exchange is appropriate for your circumstances.