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The Democrats and Capital Gains Tax
By mauch | February 1, 2007
One concern I have been hearing lately is about how the Democrats will hike the capital gains tax the first chance they get. Everyone knows that the nations defecit is growing and the current administration has rolled back taxes (including capital gains) in hopes of spurring growth in the economy.
Well, I can’t say if this strategy has worked or not, but there are some relative certainties with the future of the capital gains tax. I found a good article at CNNMoney.com that gives a bit of insight to what may happen in the next 3-5 years concerning the capital gains tax.
Bush signed off on the capital gains tax cut some years back and the cut isn’t set to expire until the end of 2010. There have been several attempts to raise the capital gains tax in recent years but the Bush administration has made it known that any attempt to do so will be vetoed so fast your head will spin. To throw a cog in the wheel, with the Democratic takeover of the house and congress it looks like they have a great chance for the White House in 2008. If the Democrats want push a bill through to raise capital gains after elections in 2008 they technically could. However, most political analysts predict that they will let the current legislation stay its course and expire in 2010.
So, this means that it is pretty certain that the long term capital gains tax rate for most of us will stick at 15% for another 4 years or so (including 2007). That is comforting, however, what happens for someone who chooses to defer capital gains tax now and realize a portion of their gain in 2011 and beyond?
According to the current capital gains tax legislation, the tax will go up to 20% after 2010. When considering how high capital gains have been in the past (an average of over 25% as late as 1996), 20% is still nothing to be overly concerned about for sellers looking to defer their tax.
So, if you are contemplating taking your capital gain now rather than deferring and paying a slightly higher capital gain tax after 2010, you should sit down and crunch some numbers to see which way makes more sense. Remember to figure in the return you will earn on both your principal and deferred tax in your calculation. Entering the return you will earn on the deferred tax (and the high liklihood that you will be in a lower tax bracket if you defer) into the equation may show you that it is smarter to defer tax rather than take the entire hit now.
Be sure to perform your own calculations to see exactly what is best for you. If you would like, email me @ mauch@structuredsalespro.com and I will help you perform the calculations and show you which way is in your best interest.
Until next time…
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