Introduction to Real Estate Capital Gain Taxes...and How to Avoid Them!
Rey Villar (GMail)
Introduction to Real Estate Capital Gain Taxes...and How to Avoid Them!
A review of real estate capital gains taxation can get complicated because of the many regulations and allowances provided by law. But a good working knowledge of these tax regulations and benefits can often mean the difference between profit and loss for many real estate investors.
The stock market and now the booming real estate market has introduced most Americans to the scourge of capital gain taxes.
The problem many Americans (both Republicans and now Democrats) have with capital gain taxes is that it penalizes investors and innovators for creating value. You create a company, with your sweat and tears, and put in your own money to build its value. All along, your company is paying corporate income taxes, payroll taxes and property taxes. When you sell your interests in that company, you get hit with capital gain taxes.
Recent developments have lowered capital gain taxes, but they are still there. Where it was previously 20% for long-term capital gains, it is now only 15%. Will it stay that way? Will it go back up? Or will it hopefully continue to drop?
Okay, so that's the bad news. The good news is that there are established loopholes for avoiding these taxes. Smart investors are already aware of these loopholes. Beginning investors need to learn them. Understanding these loopholes will mean thousands of dollars in savings. Failure to follow the required procedures will mean thousands of dollars in lost savings. To paraphrase the wise adage, remember that building wealth is not so much about how much you make, but how much you keep.
This overview reviews the details of capital gain taxes (and how to avoid them) in three sections:
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Computing capital gain taxes
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Homeowner exemptions
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Creative exchanges to avoid capital gain
The first section explores how capital gains is calculated. It is not always a straight-forward calculation. From there, this overview will discuss the two main loopholes available for property sellers: homeowner exemptions and tax-deferred exchanges.
1. Computing Capital Gain Taxes
The devil is in the details, and that is probably no truer than with capital gain taxes. This probably explains why experienced tax accountants are in such demand. Fortunately, it only seems overly complicated. A step-by-step introduction should clarify how capital gains taxes are calculated. To tackle this challenge, this section is divided into two parts:
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Calculating your gains (profit or loss)
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Determining the tax rate
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