The Washington herald., 1922-01-22
lSURTAX ON PROFIT
in REALTY SALES
RELIEVED BY ACT
New Statute Removes
Many Obstacles for Brok-
= =,
= 9ers; Excess Tax Goes.
GIFTS AFFECT ED
Important Changes Under
Law Prove of Interest to
= a. Property Owners.

unus ne new FEDERAL revenue act of
1891. which became effective on No
vember %. makes many important
changes in the Income law, all of
(which are OF great interest to real
tors and owners of property. The
- new act. for example. affords con-
: siderable relief to real estate. which
has heretofore been kept of the
market because of the heavy taxes
- imposed upon the prohts from the
sale OF property.
This and other phases of the act
: are considered in a letter prepared
by John Lyle Vette. attorney for
- -tire Chicago Real Esate Board. and
~. sent out to the members of that
: board. The text OF Mr.. vette's let
Ter follows:
~ - Tax on Profits From Sales.
The large surtaxes imposed have
- heretofore kept of the market
- much real estate owned by men of
a. large incomes; this for the obvious
reason that so large a proportion
'-r.of the profit realized would go to
7F7rths government in taxes. Section
B, 2o5 of the new revenue act which
has to do with capital gain affords
considerable relief to this situation,
-~but IL should be borne in mind that
r"only applies to property. the sale
or exchange of which is consum-
a. mated after December 81. 1921, and
(which has been acquired and held
by the taxpayer t>r profit or in
vestment for more than two years"
and that II does nol apply to prop
erty held for the personal use of
the taxpayer or his family. which /
q suppose excludes the taxpayers
a. 4Aresidence from the operation of sec
tlon z06. A case of an apartment
building. one apartment OF which
Is occupied by the owner. presents
Of construction which
perhaps will be covered by a de-
partment regulation.
In case of a profit made by the
sale Of property not excluded by
the limitations mentioned. the tax
payer may. at his option, instead
Of including such profit in his in
come subject to the regular normal
- and surtax rates. elect to pay a
special tax OF 12h per cent on his
total capital net gain. Capital net
gain means the total amount of
:, capital gain over the sum of the
capital deductions and capital
losses, SO that IL the taxpayer made
several sales, and made a profit on
some and loss on others. he would
have to use the net result of all
the sales. in order to avail himself
OF section 2o6. For example. II he
- made a profit of $4,000 on one sale
and loss of $4,000 on another. he
ma ~
=, on $1,000. instead of paying 1914
per cent on $4,000 and deducting
the 5000 loss from other income
subject to a higher rate.
There is a proviso to the effect
that, IL the taxpayer elects to be
taxed under section 206, the total
tax paid by him shall in no case be
less than 1914 per cent OF his total
net income.
How Gifts Are Affected.
One means frequently and sue
cessfully used to avoid the neces-
sity of paying a tax upon profits
realized from the sale of property
has been for the seller, just before
the proposed sale, to give the prop
erty to his wife. and let her make
the sale. In that event, II the gift
were made in good faith with no
-. come accrued either to husband or
~ wife. This practice became so prev
,. Jaient that Congress has tried to
meet IL by providing that the basis
for ascertaining the gain derived or
loss sustained from a sale Of prop
erty shall be, in the case OF prop
erty acquired by gift after Decem-
Der 81. 1920. "the same as that
which IT would have in the hands of
IL
o. owner by whom il was not acquired
- by gift" (Sec., 202).
Note the retroactive effect. II
this provision be valid 1t would
seem to subject the wife to a tax
on the difference between the cost
to her donor husband and the price
q at which she sells, IN the case of a
gift to her since December 81, 1920.
- In my Judgment, a serious question
exists as to the power Of Congress
" to pass such a law because of a
strong doubt as to whether the
H.. difference between the cost to the
. husband and the sale price received
>'s- by the wife can properly be deemed
- income to the wife. That is a
question likely to receive early con-
-. sfderation by the courts.
- Corporation Tax.
One consideration that has deter
red real estate men from incorp-
Grating their brokerage and mort
gage business has been the excess
profits tax imposed upon corpora
: tfons, and perhaps, too. that has
prevented the formation of some
building corporatins. That objec-
ton is now removed, for the excess
: profts tax law is repealed as to
income accruing after December 81,
1921, and a fiat income tax of 12h
:, per cent imposed In lieu of the
=. present income tax of 10 per cent
II. and the excess profits tax.-Nation-
-, - Real Estate Journal.