Have you ever wondered if there's a chance that you can either reduce or even eliminate capital gains tax? Check out this list and learn how to do it!
Whenever you sell an asset, like a home or a car, and you gain more capital than what you invested in, you'll probably have to check if your capital gains will be taxed at the individual's marginal tax rate.
If your rate is 10% or 15% you won't have to pay any tax on capital gains. However, you will if the percentage is larger.
Check this short guide and learn three methods you can use to reduce or eliminate capital gains tax!
- Primary residence exclusion: In this case, you are allowed to reduce the profit of the sale of your primary residence by $250,000 or $500,000 if you are married. However, in order to be excluded you will have to meet three requirements: Must have owned the residence for 5 years, have lived in the primary residence for at least 2 years and not have used the primary residence exclusion in the past 2 years before the sale.
- Home renovations records: You can add certain costs to the base cost of the house, so make sure you remember agent fees, commissions, even home improvement papers (like a swimming pool or an extension) while you are preparing to claim after selling your house. By doing this, you will increase the base cost of the house, reduce your profit, and, therefore, lower capital gain.
- Section 1031 Exchange: This section is only available to businesses. It's applied whenever a business sells a property and uses those gains to buy a new property. In this case, the tax is not levied on the sale, as the cost of the original property replaces the cost of the new property. The tax would only be levied if the business doesn't buy another property with the selling gains.