Est. 1964

To Sell Or Not To Sell

You have probably seen on television investment programs, heard on the radio and read in the Wall Street Journal that the tax reductions enacted in 2001 and 2003 will expire at the end of this year. How will we be affected if Congress fails to act?

The expiration of the tax reduction will have a dramatic impact on us in many ways.   First of all, the top tax rate that we pay on ordinary income will increase from 35% to 39.6%.  Second, the top marginal  tax rate for qualified dividends jumps from 15% to 39.6%.  Furthermore, the long term capital gains tax will jump from 15% to 20%.  Finally, certain itemized deductions and personal exemptions will be phased out in 2011.


President Obama  has proposed a tax plan for high income taxpayers.   Under the President’s plan, the 36% bracket would be restored for taxpayers with adjusted gross income between $237,300 and $382,950.  Taxpayers with adjusted gross incomes over $382,950 would pay 39.6% on their ordinary income over that amount.


Under the President’s plan, the  dividend tax rate would increase to 20% for taxpayers in the 36% and 39.6% tax brackets.  Also for taxpayers in the 36% and 39.6% tax brackets, the capital gains tax rate would increase to 20%.  However,  capital gains tax would be eliminated for investments in small and start-up companies.  Finally, under the President’s tax plan, the phase-out of deductions and exemptions would be restored.


You would think that because for high income taxpayers the tax rates on ordinary income and capital gains will increase if either the 2001 and 2003 tax reductions are allowed to expire or with the adoption of the President’s tax plan, it would be a good idea to sell in 2010 property that has increased  in value.  The answer may not be quite that simple.   Before you sell appreciated property in 2010, you should compare the cost of losing the growth on the money you use to pay the tax with  paying the capital gains tax later, but at a higher rate.  After making that analysis, only then you can make a prudent decision whether it makes sense to sell appreciated property now rather than deferring the gain to a later date.

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SAVAGE O’DONNELL AFFELDT WEINTRAUB & JOHNSON

110 W. Seventh Street, Suite 1010
Tulsa, OK 74119


Phone 918-599-8400
Email info@savagelaw.cc

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