Capital gains tax is a tax levied on the profit obtained on the sale of a non-inventory asset that was higher than the amount gained on the deal. The most common capital gains are realized from the sale of bonds, stocks, property and precious metals.
Capital gains rates range from 0% to 39.6%, which makes it worth to identify strategies that can keep these taxes at a minimum.
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Capital Gain Tax Rates
There are two different kind of capital gains:
Short-Term Capital Gains are the profits on assets you have held for a year or less. Short-term capital gains are taxed at the same rates as ordinary income. Short-term capital gains tax rates match your ordinary income tax rate — your tax bracket.
Long-Term Capital Gains are profits on assets you have held longer than one year. Long-term capital gains are taxed at reduced rates. Long-term capital gains tax rates are 0%, 15% or 20% varying as per your taxable income and filing status.
Recommended Strategies to Avoid Capital Gains Taxes
There are few efficient ways to minimize your Capital Gains Taxes. We have listed few of them below.
– Always wait for more than a year before you sell
Capital gains pass for long-term status when the asset is owned longer than one year. Hence, it is advised to hold the asset longer than one year to make sure that your capital gains rate will always be lower than your marginal rate.
– Time capital losses with capital gains
In a given year, capital losses are offset by capital gains. For example, if you earned a $100 capital gain selling Stock A, but sold Stock B at a $70 loss, your net capital gain is the difference between the profit and loss – a $30 profit.
– Sell when your income is low
Your marginal tax rate determines your long-term capital gains rate, and your income determines your marginal tax rate. So, it is best to sell long-term capital gain assets in “lean” years. This will lower your capital gains rate and help you save money. If you are expecting your income level to decrease – for example, if you or your spouse lose or quit a job, or if your retirement is due – sell during a low-income year to minimize your capital gains tax rate.
– Reduce your taxable income
Capital gains rate is calculated on your income. General tax-saving strategies can make you eligible for a lower capital gains rate. A good plan is to maximize your credits and deductions before you file your tax return. Always make sure that you donate goods or cash to charity and take care of expensive medical procedures before the year’s end. If you contribute to a traditional IRA or a 401k, provide the full allowable amount to garner the most substantial deduction.
Proceed with a 1031 Exchange to defer capital gains taxes indefinitely
1031 Exchange was developed to stimulate investment in the real estate market and to urge investors to put their money back in the system. From a personal standpoint, this process will allow you to defer the capital gains tax on the trade of a property if you reinvest it in another like-kind property. However, some qualifications must be met to achieve a successful exchange. The asset needs to be held for a year or longer to be eligible for the long-term capital gains tax rate as it is significantly lower than the short-term capital gains rate for most assets. A qualified intermediary usually handles the gains from the initial sale and securely retained into a trust. The investor gets 45 days to identify suitable like-kind replacement properties and to notify the IRS. The “reinvestment” or acquisition of the chosen properties must take place within 180 days of the sale of the initial property. If any of the guidelines laid by the IRS are not met, the money in the trust will be subject to the appropriate capital gains tax. You have a range of prospects for 1031 exchanges. Properties differing from small retail outlets to huge industrial complexes can pass; even smaller investments in investment grade real estate deeded as “tenants in common” (TICS) can qualify.
Engage our services for a profitable 1031 exchange and defer capital gains tax
1031 Exchange enables your money to churn the maximum profit for you. However, the exchange process is extremely complex in nature, and it would be wise to seek guidance from expert professionals. We have extensive experience in handling highly profitable exchanges for our varied client base. For consultation and assistance regarding 1031 exchange Call: 888-993-2835 or email us at firstname.lastname@example.org.
“Our tax-deferred 1031 exchange programs can save millions in taxes, increase investor equity, and compound annual cash flow distributions and returns”
1031Xchange.com is a website platform owned by Investment Net LLC. (“Platform”). Investment Net LLC is not a registered broker-dealer. Private investment marketing and other services advertised on this Platform are offered by connecting investors with relevant Sale Representatives/Broker-Dealers/Real Estate Agents.
IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, all the investors/clients/consumers are advised to consult their tax and legal professional for details regarding their situation on any kind of investment. There are material risks every investor should know, associated with investing in 1031 Exchange properties, Delaware Statutory Trust (DST) and any other kind of Real Estate Properties. The risks include tenant vacancies; declining market values; potential loss of entire investment principal; that past performance is not a guarantee of future results; that potential cash flow, potential returns, and potential appreciation are not guaranteed in any way; adverse tax consequences and that real estate is typically an illiquid investment. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the Confidential Private Placement Memorandum. Please be aware that this material does not replace the PPM.