Capital gains taxes are a crucial consideration in the sale of your home or investment property. Considering the high toll taxes can take on profits, this is one surprise it is better to avoid when you have made such a considerable investment of time and money. When the value of an investment in capital assets, such as real estate, experiences growth and subsequently sold, there is a tax on the capital gain at that time. When the property sells, the capital gains are considered to be realized by the seller.
The IRS approaches taxes on these gains in differing ways, depending on how long the seller held the assets. Sellers can deduct your cost basis or original purchase price to determine the capital gains. You can subtract the cost basis and any costs of improvements from the profit from the capital gains.
Planning your investments, from acquisition to resale, should be completed before you ever close on your first real estate investment. A significant part of this overall business plan should include avoiding capital gains taxes when it is time to exit a property. We will explore more about what Idaho home sellers need to know about capital gains taxes.
Rates and Limits
These taxes are capped at a specific limit to restrict the growth of government revenue. Idaho 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 be 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 is limited as well.
Married vs. Single
There is an sometimes an exclusion, called the home sale exclusion, available every two years for Idaho home sellers on capital gains taxes of up to $500,000 over cost basis for married couples filing jointly. The exclusion is $250,000 over cost basis for single investors. One of the qualifying requirements for this exclusion is that the real estate will have been lived in for a total of two of the last five years as your primary residence, though they don’t have to be consecutive.
You may be required to make estimated payments on your capital gains. It is wise to consult with a tax advisor to ensure you are making the right moves for your investments. Deferrals of capital gains are allowed under a 1031 exchange of like properties. There are strategies that you can put into place to offset these taxes with capital losses. Ensuring you have covered all of your bases means it is essential to have built a strong team of professionals to help guide you because you want to keep as much of your money as possible.
Brady Buys Houses understands just what Idaho home sellers need to know about capital gains taxes and what you can do to avoid them – sell to Brady Buys Houses or buy a “like-kind” investment from our inventory of great investment properties! At Brady Buys Houses, we make it easy to keep your hard-earned investment profits at work, earning wealth and long-term passive income for you! Call Brady Buys Houses at (208) 298-5422 or send us a message today!