There has never been a better time to sell off real estate property with a booming market and hundreds of ready buyers. However, one pesky tax, the capital gains tax, can eat away at your profits, making it important to implement tax reducing strategies.
Time the Sale
If you have the property under 12 months, you will be taxed at your ordinary income tax brackets, while any investment held longer than 12 months is subject to long-term capital gain tax rates. If you notice capital gain rates going down the following year, consider holding off on the sale to take advantage of favorable rates.
Keep Track of Basis
Your basis is the original purchase price of the property plus all of the qualified improvements you’ve made. Why does this matter? Well, your basis is directly subtracted from the property sale price, reducing the income subject to capital gain taxes. Keep track of all receipts for improvements.
Deduct Closing Costs
Selling your real estate can generate high closing costs, but luckily these are deductible from taxable income. Just like your basis, closing costs, such as title fees and commissions, are subtracted out from the sale price, further reducing the amount taxed at capital gain rates. Your closing documents should have all this information listed, so retain a copy for tax time.
Contact a Professional
As always, contacting an accountant, such as Abdul Tax Consulting and Accounting Services, is never a bad idea as they can help you navigate your way through capital gain taxes. They can help you brainstorm qualifying deductions to help you maximize the profits from your real estate sale.