How Do Capital Gains Tax Work?
What Is the Capital Gains Tax?
Capital gains tact is a tax on the profit you make from selling an investment. Oftentimes this is the sale of a home. The rates are different depending on whether or not this is a short-term or long-term capital gains tax. You will owe long-term capital gains tax on profits from an investment that is owned for at least one year. Short-term tax gains are based on your income bracket.
Capital Gains Tax
Whether you are selling stock shares or investments or assets are sold for a profit you will be taxed. This doesn’t apply to unsold investments. It is only a tax profit from something owned for more than a year. Most pay more on their income than they would on any capital games. There is definitely a financial incentive to hold on to your investments so that the taxable profit will be lower. If you are someone who trades in the stocks daily, you have to stay aware of any profits made because this will be taxed at a higher rate. Your total taxable gain can be reduced due to your capital losses that are incurred within a year.
Capital Gains- Real Estate
Owner-Occupied Real Estate
If you are selling your primary residence then you have a different standard. This is the case if you have lived in the residence for 2 or more years.
- $250,000 of an individual’s capital gains on the sale of a home are excluded from taxable income ($500,000 for those married filing jointly).
If you have experienced capital losses, these are not deductible from your gains. However, in most cases, any significant repairs or home improvements can be added to the cost that reduces the amount of taxable gain.
Investment Real Estate
If you are an investor you are allowed to make decisions based on depreciation. This can reduce the amount you are considered to have paid for the property initially. This can increase your capital gain if you sell the property.
Calculating Your Capital Gains
Any losses can be deducted from our capital gains when you are calculating for the year. This can be complex if you are dealing with both short-term and long-term investments. It is advised to work with a tax professional in this case. There are many people in the real estate industry who have a lot of knowledge on this topic but unless they are licensed or certified tax professionals, you should seek professional advice just to make sure you are doing all of your capital gains tax correctly.
For more information on purchasing a home in St. George and surrounding areas please contact me anytime.
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