Selling real estate can boost your finances, but it may result in capital gains taxes if the sale price surpasses your purchase price. Luckily, there are strategies to help reduce or avoid these taxes. Here’s a guide to assist you in managing this aspect of your property sale.
Primary Residence Exclusion: If your home has been your primary residence for at least two of the last five years, you can exclude up to $250,000 in capital gains if single, or $500,000 if married and filing jointly.
Inheritance Step-Up: When inheriting property, its cost basis is stepped up to its market value at the time of the original owner’s death, potentially reducing capital gains taxes if sold.
1031 Exchange: For investment properties, use a 1031 Exchange to defer taxes by reinvesting sale proceeds into a similar property. Ensure compliance by working with a qualified intermediary due to strict rules and timelines.
Long-Term Holding: Holding an investment property for over a year qualifies it for lower long-term capital gains tax rates, which are usually between 0% and 20%, depending on income.
Home Improvements: Maintain records of major home improvements like new roofs or kitchen remodels. These can be added to your property’s cost basis, reducing your capital gain.
Offset with Losses: Use tax-loss harvesting by selling other investments that have lost value to offset your capital gains and lower taxable income.
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Shirin Rezania Ramos | 858.345.0685 | www.shirinramos.com | Compass, DRE 0203379
