Have you been considering selling your home? If so, you need to know how the Capital Gains Tax will impact your position as a seller – and the revenues gained from the transaction.
The Capital Gains Tax means that property sellers get charged taxes on all the gains produced by their property sale in the closing year’s taxes. And, as we all know, real estate transactions aren’t cheap. Having to pay taxes on the entire gain can be a huge financial burden and inconvenience for sellers.
Fortunately, there are ways to sell your home without having to pay the Capital Gains Tax. Here are some loopholes that can cut back on the taxes incurred on your property sale:
Planning Your Sale Based on Taxes
While this option doesn’t necessarily avoid the Capital Gains Tax altogether, it certainly alleviates the burden. All sellers should plan to set the official title transfer for a year when your taxes are at a low point.
Take a look at what you owe and navigate the sale to fit into the year with the lowest taxes. This works especially well for sellers whose income fluctuates every year, so they may be able to leverage the burden of the Capital Gains Tax.
Consider Transferring Real Estate with the Section 1031 Exchange
If your income is more stable, investors have the option of trading real estate properties.
By trading properties, they aren’t responsible for paying the immediate Capital Gains Tax. Exchanging two similar-valued properties results in no gross capital gains or losses, so there are no tax payments required until one of the properties is sold for money.
However, this doesn’t always mean that a seller can completely avoid paying the Capital Gains Tax. In order for sellers to fully skip out on paying the Capital Gains Tax, you’ll need to meet these requirements:
- The properties being exchanged must be appraised at a similar value and type.
- The transferred properties must be linked to business – not solely residential.
- There’s a 180-day window there the official transfer must take place. Or, the other option is it must be completed by the year’s tax return due date.
In addition to these stipulations, there are a few other requirements that need to be met.
If you’re curious about your property transfer’s eligibility, talk to a trusted real estate professional. Consult with your agent, realtor, or real estate lawyer about planning your next move.
Use these expert strategies to avoid paying the Capital Gains Tax on your property sale. Interested in doing business in the Merced County real estate market? If so, contact me to take the next steps. I’m looking forward to hearing from you.