Are you considering putting your Sacramento home up for sale? Depending on your property’s specifics, you might have to deal with capital gains taxes. But, there is a method to postpone these taxes! Discover how to evade tax payment when selling your Sacramento property in our most recent post!
The prospect of selling your home at a significant profit may thrill you, but keep in mind that the taxman always wants his share! Capital gains taxes are calculated on the difference between what you initially paid for a property and the eventual selling price. Such taxes are not confined to real estate alone; they also apply to assets like stocks, bonds, vehicles, and boats. However, in real estate, numerous exemptions can help you avoid these taxes. Here are some situations when capital gains taxes become applicable:
- You are single, and make more than 250k profit on the sale of a home
- You are married, and make more than 500k on the home
Hence, it’s crucial to retain all receipts for home repairs, as these expenses contribute to your ‘cost basis’ – the total amount of money you’ve invested in the property prior to its sale.
These figures may seem a bit exaggerated, but consider a house bought years ago for $150,000 and selling today for $550,000 – it would clearly fit this scenario. To delay paying taxes on this amount, you might want to consider a strategy known as a “1031 exchange.”
What Is It?
You might have heard of a 1031 exchange in the past, but do you know how it works?
A 1031 exchange is a strategy where you reinvest the profits gained from the sale of a property into another real estate asset. This method allows you to defer the capital gains taxes you would otherwise owe. Many investors routinely use this process to minimize their tax liability. There are certain requirements to meet for a successful 1031 exchange, but fulfilling these can potentially save you a significant amount of money.
To Qualify
The requirements for a 1031 exchange are quite standard. You must have lived in the property for a minimum of 2 out of the past 5 years, and it should be your primary residence. The 1031 exchange is not applicable if you’ve claimed this exclusion on another property in the past 2 years or if you’ve procured another property via a 1031 exchange within the last 5 years.
Further, the property you buy should be of “like-kind”. This term has a broad interpretation. For instance, you can sell a land parcel and reinvest in a house, or sell a duplex to buy undeveloped land. All these scenarios are valid under a 1031 exchange.
At InsightfulREI Buy Houses Sacramento, we frequently assist clients with 1031 exchanges. We are seasoned investors and property sellers with a vast selection of properties on offer at any given time. Our inventory is continuously updated, offering a diverse range of properties to choose from. If you’re aiming to evade paying taxes on a property you’re planning to sell, we’re here to provide a solution! We’ll guide you throughout the entire process, potentially saving you thousands of dollars in the process!