CAPITAL GAIN TAX CHANGES IN 2001:

"Reduced Rate Available When Holding for Five or More Years"

NEW RATES EFFECTIVE JANUARY 1, 2001

Is Uncle Sam giving Americans another tax break?   Well, sort of.  For 2001, a new "long, long- term gain" rate has been incorporated into the Federal tax code.  Here is a summary of the four (4) ways capital gain taxes are calculated:

SHORTR09;TERM: Capital gains on property owned for 12 months or less are "shortR09;term gains" and are taxed at ordinary income rates.

LONGR09;TERM: For property owned more than 12 months, the gain is considered "longR09;term gain" and is taxed at a flat rate of 20% -- unless the investor is in the 15% bracket, in which case a 10% rate applies.

LONG, LONG-TERM: A real estate investor who is in the 15% Federal tax bracket will pay Federal capital gain taxes at 8%, rather than 10% on "long, long-term" capital gains (the long-term capital gain tax applies to investments held more than one year and less than five years.) For an investor in the 28% bracket, "long, long-term" gains will be taxed at 18% as compared to the current 20% long-term capital gain rate.

To be eligible for the new 2001 "long, long-term" rates, an investor must:

Ø      Purchase a new property after December 31, 2000 

Ø      Hold the property for at least five years 

UNRECAPTURED §1250 GAIN: When selling depreciated real estate, an investor is taxed at 25%.

UNDERSTANDING TAX DEFERRAL BENEFITS

Most investors understand the value of tax deferral and try to maximize the investments in fully tax-deferred accounts such as 401 (k) and IRA accounts. The main reason many Americans make this choice is because they have the ability to let the earnings accumulate and compound without any tax consequences.

BETTER TAX ALTERNATIVE - §1031 EXCHANGE

Apply the same rationale to tax deferred exchanges as to investments in the stock market in tax deferred accounts and it is easy to see that property owners have the same opportunities. Their equity can grow 100% tax deferred in a §1031 exchange without government limits on the amount of tax deferral each year! Quite simply, why pay taxes today, when the government has provided a legitimate tax vehicle for fully deferring real property capital gain taxes? Use this tax savings essentially as an interest-free, no-term loan to accumulate more real estate!

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