ken@nsc.UUCP (Ken Trant) (10/09/86)
FYI
If you own rental Real Estate you will find that the marginal tax rate may
remain as high as 49.5% under the new tax bill. This is only .5% less then
the top rate of 50% charged under current laws.
The Marginal Rate is the rate that applies to each additional dollar
of income a taxpayer earns. This rate is given special attention by
economists because they believe it affects a taxpayers willingness to work
harder or to invest more.
One of the effects to the Real Estate market is that, the 49%
marginal tax rate would apply even to these taxpayers' long-term capital
gains a sharp increase from the existing top rate of 20%.
The new tax rate calls for a top rate of 28% but the new bill contains
a number of provisions under which certain tax benefits would be
phased out for people with high incomes, and these provisions have
the effect of pushing the marginal tax rate above 28%.
A family that earns $100,000 to $150,000 a year and that owns rental Real
Estate could be subject to two separate phase-out provisions. For such a
family then marginal rate may drop scarcely at all from the current law.
The marginal rate for a family earning between $71,900 and $200,000 would in
effect be 33%, that because of the phase-out of the bills 15% lower tax rate
and of the personal exemptions.
The 15% rate benefit would be phased out, in effect, by placing a 5%
surcharge on income in the $71,000 to $149,250 range. Personal exemptions
would phased out by placing a 5% surcharge on family income above
$149,250, until the exemptions were all offset.
That means that families earning between $71,900 and $200,000-- the exact
figure depends on the number of exemptions-- would face a marginal tax
rate of 33%. The marginal tax rate for taxpayers with higher incomes
would again drop to 28%.
If you currently use tax losses from rental Real Estate to offset other income
you will face another surcharge, the bill would allow families with incomes
less than $100,000 to take rental Real Estate losses of as much as $25,000,
but as soon as your income rose above $100,000 that benefit would start to
phase out- with .50 cents of the loss being denied for every extra dollar
of income.
This provision in effect imposes another surtax of about 16.5% on income
between $100,000 and $150,000. That means that the marginal tax rate for
those people would be 49.5%, just slightly under the current top limit of
50% imposed by current law.
It should be remembered that this is only a bill and has not been signed
into law. The figures used here are for demonstration and should not be
used for figuring out your personal situation, for that you should consult
with your tax accountant.
Since this article was written the bill has been passed and is awaiting
signing by President Reagan. Now when considering a real estate investment
you should judge it as you would any other investment, how will it perform,
instead of from a tax write-off point of view. Real estate is still and,
in my opinion, will continue to be a good investment, you just need to be
more careful in selecting which properties to invest your money.
Sincerely
Ken Trant
Real Estate Professionals
Fremont, Ca
415-651-3131