Insight into Capital Gains Tax in the Property Industry
We all have a responsibility to pay taxes to the government and thus, the tax reforms expected to be implemented might have an impact on everybody. While tax reform could come with negative impacts, it is also crucial that you focus on the positive side of it because you can save lots of money which could be taxed as part of your income. In particular, investors in real estate should be concerned with how a capital gain tax could affect them. Reading this article would provide you with an insight into capital gain tax and how you can go about it.
Perhaps, let’s begin by explaining what capital gain tax means. In most cases, when you sell a property, you stand a chance of making profits. This benefit is a capital gain, and it is taxable at a rate which is predetermined. Short term gains refer to the profits you make when you sell a property that you have owned for less than one year and its tax rate is the same as the rate for your taxable income. The rate for short-term capital gain is same as that of the income tax, and it is applicable in a situation where the owner of the property sold it after holding it for one year or less. If you have sold a property that you have owned for a year or more, you will be taxed based on the rates of long-term capital gains which are between 0-20% depending on the amount of gain that you have made. You might also qualify for exemption if you want to sell your home that you have lived for a few years after you bought it within the past five years. If you have a spouse, then the exclusion amount becomes $500,000.
How do you qualify to pay capital gain tax? However, you should know that you will pay high tax amount for short-term gains than the amount you pay for long-term benefits. Amount of capital gain tax is not only determined by the period which you have held the property, but also the tax rate of your income and the appreciation value of the property. The use of taxation tools such as capital gains tax property exemption tool can help you to determine whether you qualify for capital gains tax or not.
Since taxes reduce the amount of money that you get from the sale of properties, thinking of ways to minimize the tax amount is crucial. Since long-term gains have favorable tax rates, you can delay the sale of properties that you have held for less than a year until one year elapses. Taxable income also affects the amount of capital gain tax, and thus, you should look for tactics of lowering your taxable income so that when you sell your property, you get a low capital gain tax. If you cannot wait for that long period to retirement, you can convert your income to savings.