The Capital Gain Tax Rate Change for 2011 Will Present Challenges for Sellers

July 23, 2010 by Caroline Leave a reply »

john-muir-e-blast1Written By: John Muir

As we look ahead to 2011, the federal government will allow the capital gains tax rate for individuals in the 28% Ordinary Income Tax Class or above, to increase from 15% to 20%, a 33.3% increase over 2010. Historically, rises in the capital gains tax rate have tended to slow economic growth and reinvestment. This condition is known as the “lock-in effect” where investors avoid taxation by holding appreciated assets.For ranch Sellers, one way to gain momentum before this occurs is to candidly look at the price points set on the property and offer a discount where appropriate. In order to be effective, this discount should be large enough to garner action within the first 90 days. If the timing of price reductions is delayed toward the end of the year it may force a Seller into further discounts and a negative “double dip” for resulting net proceeds due to the compounding of lower prices and higher gains tax. Buyers negotiating near year-end may try to discount the purchase price an additional 3-4% based upon the argument they will save the Seller the 5% tax increase by closing in 2010.

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