Taxes: 10 Mistakes that Most People Make

Facts on Capital Gains Tax and How Property Owners Can Make Savings

Understanding the basic concepts of taxation is essential especially during this time when there are new tax reforms that would affect many people. Many people feel the pinch of paying taxes because it cuts down the gains that they many in business or employment but do you know that you can take advantage of tax policies to save lots of money? The tax reforms dwell in capital gain tax, and thus, it affects majorly property owners who sell their properties. This article discusses details of capital gain tax on real estate, and it would be beneficial to you if you intend to sell your property.

Let us start by understanding what it means by the capital gain tax. In most cases, when you sell a property, you stand a chance of making profits. Capital gain is the profit that you make whenever you sell a property for an amount exceeding the cost of the property, and that benefit is taxable. There are two types of benefits when you sell a property; short-term gain and long-term gain and they have different rates of taxation. Long-term gains are the profits from the sale of a property that you have held for a period exceeding one and its tax rate is on a scale of 0 to 20% depending on the amount that you realize from the transaction. If you have sold a property that you have owned for a year or more, you will be taxed based on the rates of long-term capital gains which are between 0-20% depending on the amount of gain that you have made. You can also get an exclusion of $250,000 if you have sold a house that you have lived in for less than five years. If you have a spouse, then the exclusion amount becomes $500,000.

How much in the form of tax will you pay for capital gains? Usually, short-term capital gains owner pay more than long-term capital gain owners. Amount of capital gain tax is not only determined by the period which you have held the property, but also the tax rate of your income and the appreciation value of the property. The use of taxation tools such as capital gains tax property exemption tool can help you to determine whether you qualify for capital gains tax or not.

How can you control the amount of money that you pay for capital gain tax? Since long-term gains have favorable tax rates, you can delay the sale of properties that you have held for less than a year until one year elapses. You can also choose to reduce your taxable income by waiting to sell the property when you have retired. If you cannot wait for that long period to retirement, you can convert your income to savings.