Will it pay to hold off on selling a rental now that prices seem to be going up?

Selling Investment Property in 2012 may be less taxing

All of the talk about the  so called “Fiscal Cliff” is more than conceptual rhetoric.  When it comes to the sale of investment property it’s very real. The Bush-era tax cuts are set to expire at the end of 2012. (That’s 45 days from today, enough time to close an escrow.)

The long term capital gains rate is expected  to revert from the current 15% rate back to the former 20% rate . Meaning, the tax on your profits will increase by 5%.
In a nut shell any appreciation over the next year may be wiped out by the anticipated increase in the capital gains rate.

There are other tax consequences to consider such as recapture on any depreciation. Again, my advice would be to consult your tax advisor.

When I first had the opportunity to meet  local Icon Wendell Robie he told me ” it’s not what you make it’s what you keep.”  In the investment world truer words were never spoken.

You didn’t say whether or not you needed the cash in one lump sum for any particular purpose.  If you don’t need it, I would suggest that you consider being the bank and carrying the note over several years. You wouldn’t suffer the tax consequence all at once but over time. Talk it over with your tax preparer.

Another consideration would be deferring taxes all together through a 1031 tax deferred exchange. If you acquire a replacement property of equal or greater value taxes on any gain will be deferred until the replacement property is sold some time in the future. Taxes would only be paid on any cash that you take from the exchange. Also called boot.

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