Wealth-Coaching

When selling an investment property, there are several steps that you can take to reduce or eliminate capital gains taxes that would normally be owed to the government. If your note were to be treated as capital gains, you could face very high taxes for selling the property. These include a 5% tax for those in the 24% and under tax brackets, a 15% tax for those in the 25% and higher tax brackets, and/or a 25% tax for the sale of property that has depreciated during your ownership to offset tax credits you may have received in past years.

You can also have the property qualify for ordinary income by living on the property as your primary residence for a total of two years out of the five years prior to selling it. These two years also do not have to happen at the same time, as long as they total 24 months. If you do this, you can receive up to $250,000 (if filing as single) or $500,000 (if filing jointly) without owing any taxes. It is important to note, however, that you can only qualify for this tax break on one property every two years.

You can also reduce your capital gains tax responsibility when you involve the property in a 1031 exchange. With this law you can sell one property and invest the full amount into a new property to avoid capital gains tax. Unlike the previously mentioned law, the property does not have to qualify as your primary residence nor are you limited to a certain amount per year. As long as the entire amount goes into buying a new property in the US (so that it meets the like-kind requirement) you can eliminate these very high taxes. — J Curan