Under current law, capital gains are taxed at a maximum rate of 15 percent. This rate is temporary and will revert to 20 per-cent as of January 1, 2011. When capital gains tax rates were reduced to 15 percent from 20 percent in 2003, the deprecia-tion recapture rate remained at 25 percent.

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Favorable capital gains tax rates provide a stimulus for owners wishing to sell appreciated property. Lower rates relieve the so-called lock-in effect, in which taxpayers are unwilling to sell property because of high tax costs associated with sales. Lower capital gains rates also partly mitigate the built-in gain that arises from inflation.

The "gain" on ...

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