A capital gain is the profit made when selling an investment or asset, including real estate. The capital gains tax is the levy on that profit when an investment is sold. It is owed for the tax year during which the investment is sold.
Long-term capital gains tax is the tax levied on profits of an asset or investment that was owned for over one year. The long-term capital gains tax rate vary and depend on your income but the rates are typically lower than your ordinary income tax rate
If the investment or asset is owned for less than a year when the gain is made, then the short-term capital gains tax applies. The short-term rate is typically determined by the taxpayer’s ordinary income bracket – but can vary in some circumstances.
The Primary Residence Exclusion. IRS – Section 121
The Internal Revenue Service (IRS) allows homeowners to exclude a certain amount of gains that result from the sale of their primary home from their income. This is known as the Section 121 rule.
Single Homeowners may exclude up to $250,000 of gains on the sale of their property, and married homeowners filing jointly can exclude up to $500,000.
To be eligible for these exclusions You must have owned the home for at least two years AND have lived in the home as your primary residence for at least two years of the previous five years prior to the sale date. The two-year period does not have to be consecutive. See More Here at IRS
Investment Property Deferment- 1031 Tax Exchange in Real Estate
Section 1031 is a provision of the Internal Revenue Code (IRC) that allows a businesses or the owners of investment property to defer federal taxes on some exchanges of real estate. The provision is used by investors who are selling one property and reinvesting the proceeds in one or more other properties.
Qualifying Section 1031 exchanges are called 1031 exchanges, or like-kind exchanges.
In General, A 1031 exchange allows investors to defer taxes on the profits of sold investments. The exchange can be complex with rigid time frames for identifying the replacement property and reqiures a Qualified Intermediary (QI) to oversee and process and the funds.
Tax laws and codes are complex and can change, always consult a tax professional to review your unique situation.
Gena Glaze
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