Capital Gain Taxes

If you ever sold property for more than what you bought it for there is a change you have experienced capital gains tax. Selling property is a taxable event, this taxable event is calculated by subtracting amount realized by adjusted basis (Cost Basis = Price of paid for property + Fees related to close property + Modifications done to the home). Only the gain is subject to capital gains taxes.

The amount being taxed is determined by tax bracket and amount of time property is held under ownership. Tax brackets are determined by how much income was generated in current year. Amount of time property was held for is broken down to either long or short term, and that is determined if you owned the house for more or less than a year. If more than a year it would be long term gain and that is taxed at lower rates than short term gain. Short term is less than a year and is taxed as ordinary income.

Tax codes relating to Capital Gains tax

Section 1031 - Popular with investors. Commonly known as “like-kind exchange” allows for the deferral of capital gains taxes when investment or business real estate property is exchanged for another "like-kind" real estate property. Certain time limits apply, such as identifying potential replacements within 45 days and completing the exchange within 180 days.

Section 121 - Allows you to exclude a portion of the capital gains from the sale of your principal residence from being taxed. To qualify, you must have owned the home and lived in it as your primary residence for at least 2 out of the 5 years before the sale. It allows you to exclude up to $250,000 of capital gains (or $500,000 for married couples filing jointly) from the sale of your principal residence from your taxable income.

Tax laws are always changing please advise with your financial advisor, enrolled agent, or CPA. This is not advise in any form.