Will Impending Tax Hike Spark Flurry of Senior Housing Activity?

Some senior housing holdings may go the way of the Star Wars franchise and get sold off prior to January 2013’s expected hike on the tax rate for capital gains.

With President Barack Obama’s re-election and the surety of continued implementation of the Obama administration’s tax policy, the senior housing and care industry may see a flurry of sale and acquisition activity as owners may look to divest certain communities or even whole portfolios before the end of the year, suggest multiple financial advisory sources.

The current individual rate on long-term capital gains is 15%, which it has been since 2003. However, if nothing is done in Congress by January 1 to avoid the upcoming “fiscal cliff,” there will be an automatic return to the pre-President George W. Bush rate of 20% for those in higher-income tax brackets. Upcoming budget discussions may lead to up to double the current rate to 30% in 2013 for those earning $1 million or more. And on top of whatever the capital gains tax rate ends up being is a 3.8% Medicare surtax.

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It’s possible that George Lucas (of Star Wars fame) was pursuing the ‘sell now, pay less taxes’ strategy when he sold Lucasfilm to Disney last month for $4.05 billion.

“He probably wanted to take advantage of the lower rate on long-term capital gain while it’s certain,” Bill Smith, managing director at national accounting and professional services provider CBIZ MHM, told MarketWatch.

The looming increase is fueling sales of other privately held businesses whose owners are looking to close deals before year’s end, says a recent Wall Street Journal article. Another article, this one from CNBC, calls 2012 a “good year to sell” for many of the wealthy who are unloading stocks, businesses, and homes ahead of the fiscal cliff.

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CNBC reports:

Bankers say owners of private businesses are also pressing to sell their companies to ahead of a possible tax hike. If an entrepreneur, for instance, sells a company for $100 million, they could pay $10 million less in taxes than if they sold in 2013.

Granted, business owners aren’t suddenly selling their companies after the election. The businesses most likely to take advantage of lower taxes are small businesses that may have been in the process of selling and can push to close before Jan. 1.

Roberton Williams of the Tax Policy Center said the direct impact of all this front-loading is hard to determine, since there are so many other factors in the economy. But he said that a rise in wealthy sellers could put pressure on asset prices and stocks, at least in the short term.

“This could depress asset values,” he said.

As with other asset holders, those with senior housing investments looking to avoid the capital gain tax hike will have to get the ball rolling soon to close the transactions in time, the article says. Read the full piece at CNBC, or check out The Wall Street Journal’s article.

Written by Alyssa Gerace