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How
to Slash Your Taxes and
Protect
Your Capital Gains on Rental Property
Are
the taxes for your profits and capital gains on rental property giving
you headaches? Learn how to slash or even eliminate your capital gains
taxes so that you can keep all the profits that you earn from selling
your rental property.
What
are Capital Gain Taxes for Selling Your Rental Property?
When
you sell your investment or rental property for a price that is higher
than what you paid for it in the first place, your profits from the
sale will have to be taxed. Your profits are the capital gains on
rental property.
The important thing that you must know that
different types of property owners will be taxed at different rates for
their capital gains.
If you are property investor, you will be
taxed more heavily than the average home owner when you sell off your
investment property for profits.
The good
news is that capital
gains taxes for properties are often lower than your ordinary income
tax. If you buy and hold your investment or rental property for more
than 1 year, you can usually expect to pay a tax rate of 10% to 25% in
most countries.
However if you sell your rental property after
owning it for less than 1 year, your profits may be considered as short
term capital gains. This means that you have to face heavier taxes
similar to your ordinary income tax rates.
For some countries
such as the United Kingdom, you won't have fork out a single cent for
capital gains on rental property... if you are a foreign investor. If
you own rental property overseas, then there's a chance you
won't
even have to pay
captial gain taxes in the first place.
What
are the Effective Ways to Reduce Your Capital Gains Tax?
Selling your rental property for profits is always a
good thing, but why not make it even better by slashing the
taxes
you have to pay for capital
gains on rental property? The following are the proven steps that you
can take:
As home owners enjoy big savings on their taxes
compared to property investors, it helps to be recognised as a home
owner in the eyes of your tax laws.
If you are the sole owner
of your property, you won't have to pay any taxes on the first $250,000
of profits that you make from selling your residential home. If a
married couple sells their own residential home, they won't be taxed
for the first $500,000 of profits.
To qualify as a home owner,
you will have to stay on your rental property for at least 2 years.
Even if you have rented out your property in the past, you can still
qualify as long as you have lived 2 out of 5 years before selling it.
You
may not have to fork out a single cent for capital gains on rental
property if you are doing a roll over. What this means is that you take
the money from the sale of your rental property and re-invest it into a
like kind property type.
In the USA, this roll over refers to
the famous section 1031 of the internal revenue code. In order for your
1031 exchange to work, you will have to choose a new property within 45
days and complete the deal in 6 months.
However in the case
where you need to sell off your rental property because you need cash
urgently, it will be hard to slash the taxes for capital gains on
rental property. That's why we always recommend rental
property
owners to stash away a sum of money for major repairs and emergency
purposes.
Now
that you have mastered these important facts regarding your capital
gain taxes, it's time you learn how to calculate your taxes easily and
accurately:
Return
from
this Capital Gains on Rental Property page to our Rental Property Tax
Deductions guide
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