OPERATIONS
CAPITAL GAINS
3 Ways to Reduce Capital Gains Tax on Rental Properties UNDERSTANDING HOW TO REDUCE CAPITAL GAINS TAX WHEN YOU SELL YOUR RENTAL PROPERTIES CAN HELP YOU SAVE A GOOD CHUNK OF CASH.
by Luke Babich
a loophole that allows you to avoid paying capital gains on a property you sold for a profit if you purchase a new “like-kind” property within 180 days of the sale. For rental property investors, this means that after selling a single-family rental home, you can avoid taxation on the profits if you buy a new rental property that’s around the same price (or even more expensive). A less expensive property or one that’s not considered similar
imilar to stocks, rental properties are viewed as
spent $100,000 on upgrades and repairs. You then sell it for $550,000. Your profit would be $150,000. This is the amount that’s subject to capital gains tax. Here are three strategies investors can try out to delay, reduce, or even avoid capital gains taxes.
S
capital assets. So, when you sell them and earn a profit, you must pay capital gains tax on the money you’ve earned. You can calculate your profit by subtracting the amount you paid for the property (plus any costs for renovations or improvements) from the price you sold the property for. For instance, let’s say you bought a rental property for $300,000 and
1. CONSIDER A 1031 EXCHANGE Also known as a “like-kind” exchange, a 1031 exchange offers
20 | think realty magazine :: january – february 2023
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