1031 Exchanges AFTER Capital Gain Rate Reduction
There has been a lot of discussion about whether or not a taxpayer should complete a 1031 exchange transaction now that the highest Federal capital gain tax bracket was reduced to 15%. However, there is more involved with the decision than the 15% Federal capital gain tax rate. The taxpayer must also determine what their depreciation recapture tax would be (taxed at 25%) and what, if any, their state capital gain taxes would be. The depreciation recapture tax is the one issue that many taxpayers are either unaware of or fail to consider, but any capital gain is first allocated to the 25% depreciation recapture tax before the new 15% capital gain tax. So, quite probably, it still makes very good sense to complete a 1031 exchange. It is important for the taxpayer to consult with their professional tax advisor before selling, buying and/or exchanging to make sure they have a very clear picture of the complete tax impact.
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