Capital Gains - Selling to chase the tax rate?

If you are an investor, you know what capital gains are, so they need very little explanation to most. But considering that some may be investing, or planning to invest/or sell an investment property for the first time, I will provide a simple explanation and crunch some numbers.

When you buy a property and sell it for a profit, or more than you paid for it , then you had a capital gain. If you held it longer than a year, then it is considered a Long Term Capital Gain, and thus subject to a more favorable tax rate.

Number crunching example: Property purchased for $100,000 in January 2008 and sold after January 2009 for $160,000, is treated as a long term capital gain. The $60,000 you made will be subject to a 15% tax, or $9,000.

I am going to ignor ACR ( accellerated cost recovery) and it's effects, to make this a single focus of the Capital Gain Rate. Ask your accountant to help you if you have an investment, and are making plans to sell.
Most of you have heard in the news that President Obama has a tax plan which will effect the Capital Gains rate. When Ronald Regan was President, the rate was 28%, during the Bush administration it was cut to 15% and is still in effect until the end of 2010. President Obama's is planning to raise it to approximately 23%. This may not be the same rate for all tax brackets, so see your tax advisor for your specific set of circumstances.

I have read about some experts suggesting that there will be a huge sell off of investment properties before the rate expires. It sounds logical......maybe.  If this is the case, then that may mean taking a lower price/profit, to get it sold, to avoid paying 8% more in tax on the profit.

Let's crunch some of those numbers so you can see the opportunity, or insanity of such a move.

If you sold your property, for $150,000 at the end of 2010, to take advantage of the 15% capital gains rate, then the tax would be $7,500. (ignoring ACR) If you waited until after the tax change, and sold later at the new tax rate, then it would cost you $11,500 or $4,000 more in taxes. But consider that many others may be selling at that time, and you only got $150,000 when it was actually worth $160,000. If you waited, your gain may have been $60,000 and your tax under the new rate would be $13,800. Look at the net cash to you. Selling quickly made you $50,000 - $11,500 = $38,500 net. Selling later, (possibly) $60,000 - 13,800 = $46,200 net. You might have made more, when less people were selling, if you ignored the tax increase. I don't have a crystal ball,  and cannot predict the effect. 

I don't think anyone can predict the real effect of a tax rate increase on your situation. Bigger or smaller numbers may change the results. Just consider that you should sell properties based on a plan, or the market, or your needs, or the value of your property, and not to chase a tax rate.