Taxpayer Relief Act Increases Value Of 1031 Exchange Tax Deferral

The American Taxpayer Relief Act of 2012 has changed the rate at which long-term capital gains will be taxed in 2013 and succeeding years for some taxpayers. The rate for long-term capital gains (and dividends) will remain at 15% for individual taxpayers with incomes of $400,000 or less ($450,000 for married taxpayers). The rate for capital gains (and dividends) exceeding this level of income will rise to 20%. A sale of real estate with a large gain can easily push a taxpayer into these higher tax rates in the year that the sale takes place and the gain is realized. Of course this increase in tax rate makes tax deferral under section 1031 even more valuable. 
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The New Tax Law

The fiscal cliff compromise in DC yielded the following change of rates on long-term gains and dividends: The tax rates on long-term capital gains and dividends will remain the same as last year for most individuals. However, the maximum rate for higher-income folks increases to 20% (up from 15%). This change only affects singles with taxable income above $400,000, married joint-filing couples with income above $450,000, heads of households with income above $425,000, and married individuals who file separate returns, returns with income above $225,000.  
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