Capital Gains - Issue Summary
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| What is the fundamental issue? |
| Under current law, capital gains are taxed at a maximum rate of 15%. That rate is temporary, however, and will revert to 20% as of January 1, 2011. The depreciation recapture rate is presently 25%. Unless it is changed, it will remain at 25% as of 2011. |
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| I'm a Realtor®. What does this mean to my business? |
| Favorable capital gains tax rates provide a stimulus for owners who wish to sell appreciated property. Lower rates relieve the so-called "lock-in" effect, in which taxpayers are unwilling to sell property because of high tax costs associated with sales. Lower capital gains rates also mitigate in part the built-in gain that arises from inflation. Low capital gains rates are especially important for those investors who are able to realize gains (and not losses) during the current economic crisis. |
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| NAR Policy: |
| NAR supports a meaningful differential between the tax rates for ordinary income and the tax rates for capital gains. NAR opposes depreciation recapture rates that are higher than the capital gains rates. This inequality puts real estate investment at a disadvantage when compared to non-depreciable assets such as stocks. |
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| Legislative/Regulatory Status/Outlook: |
Over the course of the 2008 Presidential campaign, both candidates advocated a variety of capital gains concepts. Going into the final stretch, Senator McCain advocated a 7.5% rate and then-Senator Obama has gone from an initial position supporting a 28% rate to a newer policy that would put the rate at 20%. In the months since his election, now-President Obama has stated that the capital gains rate will remain unchanged during 2009 and 2010 because of the current economic crisis.
During the Ways and Means Commitee's deliberations on the economic stimulus package, efforts were made to lock in the 15% rate permanently. That effort failed. Senior Ways and Means member Richie Neal (D-MA), the chair of the Subcommittee on Select Revenue Measures stated that after Congress finishes the economic stimulus package, the discussion tax restructuring, including capital gains, will begin. Chairman Rangel has subsequently indicated that the tax overhaul (including the Bush tax cut expiration in 2011) will be debated after both stimulus and health care. |
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