Tax Strategies – Real Estate Investing – Part 14B
This is Part 14 of my Real Estate Investing Series. You can view the first 13 Parts here:
Are you planning for your Future? Real Estate Investing – Part 1
Starting at Home! Real Estate Investing – Part 2
Maintain Your Leverage! Real Estate Investing – Part 3
Picking Your Investment Property – Real Estate Investing – Part 4
Location * Location * Location – Real Estate Investing – Part 5
Cash Flow Analysis – Real Estate Investing – Part 6 A
Cash Flow Analysis – Real Estate Investing – Part 6 B
Cash Flow Analysis – Real Estate Investing – Part 6 C
Cash Flow Analysis – Real Estate Investing – Part 6 D
Passive Losses – Real Estate Investing – Part 7
Gross Rent Multiplier – Real Estate Investing – Part 8
Capitalization Rate – Real Estate Investing – Part 9
Comparable Pricing – Real Estate Investing – Part 10
Rates of Return – Real Estate Investing – Part 11
Growth or Income – Real Estate Investing – Part 12
More on Rate of Return – Real Estate Investing – Part 13
Tax Strategies – Real Estate Investing – Part 14A
The main tax issue we are going to be concerned with is the most unpredictable - Capital Gains Taxes. As I mentioned in the last installment on Tax Strategies the tax situation is always changing. If you are just starting to invest, more than likely by the time you sell what I will tell you will have changed. Right now I think most people would expect taxes to go up. At some point Capital Gains Taxes may go up, but there are always trends in the other direction. Follow the trends with your current and future needs in mind and try and time your decisions with positive trends. Very few people time the trends perfect, so do not beat yourself up too much on this.
Here are some long term ideas about avoiding or reducing Capital Gains Tax:
- If you have lived in a property for the last Two out of five years you can take an exemption and avoid the Capital Gains Tax. If you are currently have a rental that you have lived in and meets this requirement you may want to sell while you still have those two of five years left. Or if you want to sell something in the future you could move into it for two years and sell. I have seen people who owned a series of rentals that want to get the cash out move every two years or so and sell them one at a time.
- Right now Capital Gains Taxes are indexed to charge higher earners a larger amount. Sell in in years your income is low.
- Selling the home on an installment basis may help you keep your tax burden low from year to year as you are paid for the home over a negotiated period of time.
- If you are selling a number of properties and wish to liquidate your Real Estate holdings you may want to do like stock investing and dollar average. If you are unsure of price and tax trends sell them one at a time over a set periods of time. This way you can help avoid the cost of market fluctuation; you know you will sell some at good times to sell and some at less opportune times, but over all you will do well.
- The last option to sell one property and buy another is a 1031 Exchange. We will cover that in the next installment.
Good information. Some home owners and many investors may find that they owe capital gains tax. Some investors may be suprised to find that they don't qualify for capital gains treatment.
Very good info - thank you so much for sharing!