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Selling Your Rental Property? Beware of Capital Gain Taxes

Posted on in DuPage County Real Estate Attorney

DuPage County real estate lawyersRental property can increase your bottom line, bulk your investment portfolio, and even fund your retirement. Unfortunately, it can also come back to haunt you. Capital tax gains, which are charged by the Internal Revenue Service (IRS), are applied to any asset that you sell for a profit. Learn how to mitigate against this issue with help from the following information.

Offset Gains with Expenditures

If you have an investment portfolio, you can attempt to offset some of the gain from your rental home with expenditures in other investment areas. Alternatively, you may have expenses related to the home itself, which may also be used to cut your tax load. The strategy, known as tax loss harvesting, should be used only under the advisement of a professional.

Use Section 1031 of the Tax Code

Investors who are simply searching for a new property or investment, and not a cash payout, may lower their tax load under Section 1031 of the IRS Tax Code. It does have to include a like-kind investment, but that does not mean you are required to swap out a house for a house. Instead, you can sell a house and trade it out for a condominium or a store. Just make sure the property is not going to be used as your own because that does not count under the exchange rule.

Turn Your Investment into a Home

Selling an investment property and a home you live in are treated as two completely different tax events by the IRS, which is why some investors turn their rental into a primary residence before they sell. Just keep in mind that you must own the home at least five years and live in it as a primary residence for at least two years before you can claim it as your own. Also, because there are some provisions on the deductions you can take, it is encouraged that you speak with a real estate lawyer before making the final decision to live in your rental.

Contact Our DuPage County Real Estate Lawyers

Whether you are planning on buying, selling, or renting a property, contact Stock, Carlson & Asso. LLC. Dedicated and experienced, our DuPage County real estate lawyers protect your interests and investments. In every situation, we pursue the most favorable outcome. Schedule a personalized consultation to learn more about how we can help with your next real estate transaction. Call 630-665-2500 today.

Source:

http://www.investopedia.com/articles/personal-finance/121415/how-prevent-tax-hit-when-selling-rental-property.asp?lgl=myfinance-layout-no-ads

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