of the same preceding five years • Not excluding capital gains tax from any other sale within the last two years Real estate investors considering converting an investment property into their primary residence should always talk to their trusted tax advisor. That’s because factors such as depreciation recapture, potentially selling for a loss, and qualified vs. non- qualified use can affect the amount of reduced capital gains.
3. Use tax harvesting
Tax harvesting occurs when investors sell one rental property at a loss to offset the gains of another property sold during the same tax year. Tax-loss harvesting is a strategy many investors use with stocks, because they’re easy to sell online just before the year ends. Real estate investors can also use tax harvesting with rental property to match gains with losses from other investments. For example, the $50,000 capital gain from the sale of our rental property above could be offset by selling another rental property with negative equity of $40,000 to reduce the investor’s total taxable capital gain to only $10,000.
4. Use a 1031 t e a 1031 tax deferred exchange
A benefit of the 1031 exchange, which allows you to put off paying capital gains taxes if you use your profit from a real estate sale to buy another property. This makes your income essentially tax-deferred and possibly even tax free if combined with the IRS allowed Step-up basis. You can put all your profits toward the next property, which is called trading up.
A 1031 exchange covers only business or investment properties.
36
Powered by FlippingBook