In honor of April 15th, this week we will explore a few tax issues confronting short sale investors and other real estate professionals. According to the Internal Revenue Service, well over 40% of Americans do not pay income taxes but that doesn't mean they don't owe money...FICA, Capital Gains and other taxes can take a tremendous toll. For those that are busy preparing tax returns in anticipation of the big day...we feel your pain. All we can say is get ready for even more taxes in the upcoming years. According to Aperio Group in Sausalito California, federal marginal taxes are likely to substantially increase between now and January 2013... BIG TIME TAX INCREASE ON THE HORIZON
Today January 2013
35% 43.4% Conventional Short Term Gains
15% 23.8% Conventional Long Term Capital Gains
28% 31.8% AMT Short Term
15% 23.8% AMT Long Term
STATE & LOCAL BURDENS
To add insult to injury, state and local taxes are likely to make the full impact even worse. Wondering which areas to avoid? According to the Tax Foundation Connecticut, New Jersey and New York have the highest combined state and local tax burdens with Mississippi, Alaska and West Virginia coming in at the bottom three. Several states including Florida do not have a state income tax providing a major reason for high income individuals to carefully consider their residency status.
BOTTOM LINE
So, what does this really mean to investors? First of all, inefficient investments like bonds or hedge funds are likely to experience even more dramatic declines in real earnings due to substantially increased taxation rates. As investors flee from inefficient investments they will seek safety in something (anything!) able to provide real returns...including short sale real estate.
Savvy short sale investors should begin taking proactive steps to structure residency status, closing transactions and other situations to minimize taxation well before changes are put into place. Low/No tax states such as Florida or Puerto Rico (full citizenship, no VISA requirement and NO FEDERAL income taxes) are becoming popular choices for those seeking legal tax shelters.
http://www.assetunlimitedfinancial.com/
See you at the top!
Martin Crawford
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