The new 15 percent rate on capital gains may tempt you to sell appreciated real estate. However, there are fine points to consider:
* Depreciation recapture. If you sell real estate that you’ve depreciated, you’ll owe a 25 percent tax on those depreciation deductions. For some properties, virtually the entire sale may be subject to this tax.
* State and local capital gains taxes. Such taxes probably will add a few points to the effective tax you’ll pay on a sale.
* Adjusted gross income (AGI) escalation. Reporting any capital gain from a sale of real estate will boost your AGI, which can increase your tax bill through the loss of itemized deductions, personal exemptions, and various other tax benefits.
All told, you may have an effective tax rate of at least 20 percent when you sell real estate. Therefore, you might consider alternatives to outright sales, such as tax-deferred property exchanges or tax-free refinancing.
