Taxpayers are usually terrified of the word “capital gains.” You can define capital gains as the profits you gain from the sale of an asset. As per capital gains tax law, you have to pay taxes on the profits you make when you sell an asset. You can make a capital gain on assets such as land, stocks, or bonds. On the other hand, if you made a loss on a piece of property, it is considered to be a capital loss for which you get a tax deduction.
A clause in the capital gains tax law permits you to avoid paying capital gains tax even if you make a huge profit while selling an asset. Real estate in one area in which you can dodge capital gains tax. Real estate is known to be a very profitable venture; its price never goes down as long as you own it. The good news is that IRS has enabled tax payers, who invest in real estate, to avoid paying taxes on the profits they make on it.
As per capital gains tax law, if you are single and make a profit of less than $250,000 or if you are married and make a profit of less than $500,000 on the sale of your primary residence, you don’t have to pay any capital gains tax. So, unless you make a really big profit while selling your residence, capital gains tax is not something you have to worry about. Even if you make a profit exceeding $250,000 or $500,000, you have to pay taxes only on the amount which exceeds that.
If you would like to sell a house that you have been renting, you will be interested to know that you can consider it to be your primary residence, provided you live in it at least two years during a span of five years before you sell it. Several people who invest in real estate use this convenient clause to escape capital gains tax. All they have to do is to live in the property they have been renting for two years just before selling it.
Capital gains tax law has yet another clause that can help you avoid paying taxes on profits made on a place you have been renting even if you don’t live in it for two years. You simply have to invest your profits in more real estate property, and you can escape paying capital gains taxes.
You have to pay taxes on profits made out of selling bonds. If you have held the stock for five or more years, you have to pay a 15 percent capital gains tax . However, if you have held it for less than five years, you have to pay almost double, that is 30 percent.
Your tax professional is the best person to answer any queries you might have on capital gains tax law.