How To Avoid Capital Gains Tax On The Sale Of Your Property?

Real estate investments are growing for the last five years and investors are facing more and more tax specific problems. When there is an appreciation in stock, you can dispose of your shares over so many years in order to widespread your capital gains. The same comfort can not be given to the real estate. During the year in which the sale of your property takes place, the entire amount of profit is retrieved back in the form of taxes. Following are the different ways of mitigating the tax burden:

Set The Transfer Of Property In The Year Of Low Tax Burden:

Set The Transfer Of Property In The Year Of Low Tax Burden

One particular disadvantage of real estate investments is that they are not liquid assets like stocks and bonds. It takes more than a year to resolve a real estate deal even in the today’s active market. Right after the sale of your real estate, you will have to pay a large amount of tax bill on the gain arising from the sale. You can avoid this tax burden by setting your transfer of property in the year in which you are anticipating a low tax burden.

The 1031 Exchange:

No loss or gain will be acknowledged until the newly purchased property is sold, if the exchange of your property or investment with property or investment of the similar kind takes place. The section 1031 does not hold when it comes to the exchange of stocks, bonds, notes, inventory, evidence of indebtedness, and several other assets.

Condition Being Fulfilled In Order To Be Tax Free:

Properties are of similar kind for tax free exchange to occur. The purpose of holding the exchanged property must be some beneficial business or investment use and also operated for the identical use.

The new property acquired in place of the exchange of your existing property must be recognized in writing within 45 days of the first transfer. The like kind property must be obtained either with in 180 days succeeding the transfer of property or by the due date of your tax return for the year in which property is transferred.

Difficulty In Finding Similar Property:

Finding a same property for similar trade value is the best for the occurrence of 1031 exchange. But it is very hard to locate an equal exchange and, in most of the circumstances, one party has to contribute some extra cash in order to make the deal fair. The extra cash or property obtained is called as boot and a tax equal to the amount of boot received is levied.

No Tax Mitigation Is Allowed:

No Tax Mitigation Is Allowed

The mitigation of capital gain taxes can not be permitted in all cases. For example, if exchange of a real estate in USA takes place for another country’s real estate then no tax free transaction is allowed. The tax avoidance under section 1031 will not be allowed, if the property being exchanged is used for personal purposes such as a personal residence.

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One Response to “How To Avoid Capital Gains Tax On The Sale Of Your Property?”

  1. Donna Nell says:


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    Donna Nell
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