We’ve all heard or read about the looming “fiscal cliff” if Congress and President Obama fail to strike a deal before the year’s end. But what does it mean, and far more importantly, what does it mean to Minneapolis duplex owners?
Basically, the fiscal cliff is the ultimatum Congress gave itself a few years ago.
They decided if they failed to produce a balanced budget in 2012, automatic triggers including spending cuts and tax increases would being the first day of 2013.
One of these was an increase in the capital gains tax; which is basically, the amount of taxes you pay on a duplex sale after expenses.
For the past 10 years or so, the capital gains tax rate has been relatively low. In fact, through December 31, 2012, it is 15 percent.
Unless Congress acts to change the increases they planned for 2013, it will go up to 20 percent.
In other words, on a gain of $100,000, you would pay $15,000 in taxes if you sold before December 31 and $20,000 if you sold your duplex after January 1.
While five thousand dollars is a lot of money, consider this. In the 1970’s, the capital gains tax rate was 39.9 percent, and in much of the 1980’s and 1990’s, it hovered closer to 28 percent.
In this context, if something doesn’t change, 20 percent still looks like a pretty good deal.