Buying and selling real estate for a profit can be a great source of income, but one important thing to consider is capital gains taxes. When you sell an investment for more than its purchase price, capital gains taxes could be applied. This also applies to other investments such as stocks, bonds, and mutual funds. For example, you purchased a home for $200,000 and sold it for $300,000. The profit of $100,000 that you made on the sale of the home is subject to 2022 capital gains taxes.
The length of time invested and income profit determines capital gains taxes.
There are two types of capital gains: Short term and long-term. Generally, short-term capital gains are for assets you hold for one year or less. Long-term capital gains are for assets you hold for a year or more.
Short-term capital gain taxes are taxed at the same rate as your ordinary income. Long-term may still be based on your income, but typically are at a lower rate. According to the IRS website, the tax rate on most net capital gains is usually not higher than 15% for most individuals.
Ways that capital gains taxes can be avoided by some homeowners and investors:
- Reinvest sale proceeds into 1031 exchange or the use of opportunity zones
- Offset capital gains with capital losses
- Deduct the costs incurred by the sale
- Establishing your rental property or second home as a primary residence by moving into it for at least 2 years
- Owning and occupying your property for 2 out of the last 5 years allows for avoiding capital gains taxes on the first $250,000 (single-filers) or $500,000 (married couples).
Having many variations and exceptions, the law and regulations determined by the IRS for capital gains taxes. It can be confusing at times for even seasoned investors. As always with capital gain taxes, a CPA should be who you consult.
As a result of serving Cape Coral since 1989, we have the experience, knowledge, and results to help you with any sales or purchase of a property. If you need a recommendation for help with 2022 capital gains taxes call us!