Are you aware that you have to pay taxes on the profit from the sale of your residential home or investment property? This is one of the unpleasant surprises you would want to avoid considering you have made such a significant investment of time and money on your property. Your home is considered a capital asset and as such, is subject to capital gains tax when sold. If your home has appreciated in value, the money you make on the sale might be taxable. Keep in mind that the extremely high toll taxes can chip away your profits.
The IRS assesses tax on these gains in differing ways; one major factor depends on how long the investor held the assets for – short or long term. Investors can determine their capital gains by deducting how much they sell their asset for with what they pay for it originally (also known as cost basis). They can reduce their capital gain by making adjustments to the cost basis. For example, you increase your basis by including any costs of home improvements and thereby reducing your gains. Keep the receipts for new windows or fences, backyard expansions, or landscaping as they might cut your capital gains tax.
Planning your investments, from acquisition to resale, should be completed before you ever close on your first real estate investment. A significant part of your overall business plan should include avoiding capital gains taxes when it is time to exit a property. We will explore more about what Portland home sellers need to know about capital gains tax.
Limits
Capital gains tax is capped at a specific limit to restrict the growth of government revenue. Portland home sellers need to understand how these rate limits on capital gains taxes will affect their investment.
- A capital gain rate of 15% will apply should your taxable income is at least $80,000 but less than $441,450 for single filers, $496,600 for married filing jointly or qualifying widow(er), $469,050 if you plan to file as head of household, and $248,3000 if you are married filing separately.
- A rate of 20% will apply to any gain over the top threshold of the 15% rate, with some exceptions. Individuals with significant income may be subject to a Net Investment Income Tax (NIIT). If your capital gains are in the red because of capital losses, the amount of excess loss you can claim will be limited as well.
Married vs. Single
In many cases, there is an exclusion available every two years for Portland home sellers on capital gains tax of up to $500,000 over cost basis for married couples filing jointly. For single investors, the exclusion is $250,000 over cost basis. One of the qualifying requirements for this exclusion is that the property is your primary residence and you have lived in it for a total of two of the last five years (though they need not be consecutive).
You may be required to make estimated payments on your capital gains and it can be substantial. There are strategies, however, to reduce or even eliminate taxes on your gains. Consult with a reputable tax advisor to understand the tax rules and stay abreast of the new law changes as they occur; it can help you better prepare the right moves for your investments. For instance, deferrals of capital gains are allowed under a 1031 exchange of like-kind properties. Another strategy you can put into place is to offset these taxes is with capital losses. Cover all your bases by building a strong team of professionals to help guide you and continuously improve your financial stability and security.
SCAL Real Estate LLC understands just what Portland home sellers need to know about capital gains taxes and what you can do to avoid them. Sell to SCAL Real Estate LLC or buy a “like-kind” investment from our inventory of great investment properties! At SCAL Real Estate LLC, we make it easy for you to keep your hard-earned investment profits at work while acquiring long-term passive income and growing wealth! Call SCAL Real Estate LLC at (971) 238-2255 or send us a message today!