The US made history yesterday in electing the first African American president. It will be interesting to see what the next four years will have in store. Regardless of your political standing I feel that a person has to take note of the amazing step forward in our society it is to see a person of an ethnic backround that 40 or so years ago could not vote has ascended to the highest office in the land. That is Historic!
Putting all other issues aside I thought I would use this opportunity to show how one of the new presidents policies could affect commercial real estate here in Utah.
President Elect Obama has been very open in his intention to raise capital gains taxes on any American making over 250,000 per year. He has been quoted saying, “certainly would not go above . . . 28 percent,” adding, “and my guess would be it would be significantly lower than that.” From all indications the rate will be in the 25% range. I am no economist and do not suppose to understand the macro economics on a tax decision like that but I feel that a change like that can effect the Salt Lake City commercial real estate market.
President Elect Obama also quoted the oracle of Omaha as saying a rate between 20 – 25% would not affect economic decision-making. Mr. Buffet is probably right for the Berkshire Hathaway’s of the world. When your portfolio is measured in the hundreds of billions then what is another couple million sent to Uncle Sam. But how does it affect a smaller market like Salt Lake. Lets look at some numbers. And I will oversimplify!
Bob the investor owns Property A:
Property A
Purchase Price: $1,000,000.00
Bob then owns the building for 2 years does some great improvements and takes the occupancy from 50% to 95%. Bob decides to sell the building that is now worth a great deal more.
Property A
Sales Price: $1,865,000.00
Bob has now realized an $865,000.00 capitol gain! The current capitol gains tax rate is 15% lets compare that with the possible 28% we could see in coming years.
15% = $129,750.00 to Uncle Sam
28% = $242,200.00 to Uncle Sam
Does this affect the decision making process of Warren Buffet? No! But it does affect the “Joe the Plumber” investors that are in this smaller market.
There is some good news from this change! ACT NOW! Now is the time for property owners that want to unload property to do it. Or they can sit out the next four years and hope for a different tax policy in 2013!
Follow this link to get the source info for quotations.
http://blogs.abcnews.com/politicalradar/2008/08/obama-clarifies.html
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