For real estate investors located in high tax rate states, such as California, the 1031 Exchange just moved to the top of their to-do list.
There were some very significant changes made to Federal and state tax codes, and a California real estate investor that sells a $1 million investment property will likely face the following taxes:
- 20% capital gain tax rate (Federal)
- 3.8% Medicare Surcharge (Federal) (buried in the Obamacare legislation)
- 13.3% California Franchise Tax (top California rate for individuals)
- 25% Depreciation Recapture (Federal)
Real estate investors in these states, especially California, have been flocking to the 1031 Exchange strategy recently, and we should see that trend increase. It only makes sense for real estate investors to keep their money working for them now that taxes have gone up by such a wide margin.