Can you get OUT of paying Capital Gains?
A: Hmm. I wonder why real estate is such a WISE investment? Hmmm. Hmmm. Could it be tax benefits? YES! Read this very important post on taking advantage of Uncle Sam and build wealth for YOU!
I will start out this article with a early warning for all potential homeowners out there:
Keep an eye out for Tax Code Reform which seems very likely will change the tax benefits that current real estate investments produce
Now that 'another' housing related red flag just went up, lets analyze the 2 most commonly used tax benefits that can help you RIGHT NOW to avoid or defer paying Capital gains taxes to Uncle Sam!
1031 Exchange ('Starker' Exchange)
Allows a tax payer to defer the paying of taxes on a gain when an investment property is SOLD & a new property of like or greater value is PURCHASED. In other words, if you first purchased a property for $400K, and then 1 year later sold it for $500K, you can then defer the payment of taxes on the $100K Capital gain in this transaction, as long as you purchase another property worth $500K or more.
Primary Residence Tax Benefits
If you have lived in your property, as your primary residence, for at least 2 out of a period of the last 5 years, you will not have pay Capital gains taxes on the profit when you sell. This benefit equals up to $250K of tax-free gains for singles, and up to $500K of tax free gains for married couples. Of course, this is dependent on how you filed your last tax return; single or married.