Two methods you can use to cut down on the capital gains tax.
Everyone wants to build wealth through real estate, but if you make too much on your sale, you might have to pay the capital gains tax. Today we want to talk about a few tax advantages that you can employ to mitigate it.
The first tax advantage is a Section 121 Exclusion. To use this exclusion, you have to have lived in the property for at least two of the last five years. As long as your property is eligible, you can earn a certain amount of capital gains from the sale without paying the tax. If you’re single, you can earn up to $250,000, and if you’re married, you can earn up to $500,000.
“You should use these tax advantages if they apply to you.”
Let’s say you bought a property for $200,000 and put $50,000 worth of improvements into it. Anything above the combined $250,000 is what you would pay capital gains on. If you sold this property for $500,000, you could avoid paying any taxes if you’re single and use the Section 121 Exclusion.
Another tax advantage is the 1031 Exchange. For this procedure, the property has to be an investment property. With it, you can roll the capital gains into another property tax-free. It’s a great way to build wealth.
I recommend you use these tax advantages, but make sure you talk with a tax professional and keep track of your write-offs if you plan on doing so. If you have any questions about building wealth in real estate, feel free to call or email us. We would love to help.
