How To Avoid Capital Gains Tax On Rental Property
Here are some common ways to avoid this tax.
#1. Make Sure to Match Your Losses
Rental property investors can have losses realized that will cancel their gains for a specific year. Sometimes this means harvesting capital losses when they happen so they can be used on future taxes. If you have more than $3,000 in excess losses, these can be carried to a future tax year for an indefinitely period of time.
#2. An Exclusion For the Primary Residence
If you sell your primary residence, then you can exclude up to $500k of capital gains. This is particularly useful if transitioning to a rental property that you wish to control through an LLC instead of your personal revenues, especially if you've owned the property for more than a decade.
#3. Renovation Write-Offs
If you make a future rental property your primary residence and you renovate it to improve the property's value, then you can create better rental income while being able to keep the increases from hitting you on your capital gains tax.
#4. A 1031 Exchange
Whenever you buy or sell rental property, you're given 180 days to rollover your investment into another rental property without needing to pay the capital gains tax. It's a pretty complicated rollover and you'll likely need a tax professional or legal professional helping you out with this transfer, but you'll be able to avoid the tax through the process.
#5. Stock Exchanges
If you've sold rental properties and this has created a high level of investment income, then stock exchanges that put your money into a similar security can create an equally valued portfolio that has the diversification that you need. It's cheaper to do this through a broker than it is to pay the capital gains tax, so it could make sense for you if you want to get out of rental properties for good.
#6. Contribute To Your IRA or 401k
There are tax benefits to donating to your retirement and many of these credits can help to offset the capital gains taxation that occurs from the buying and selling of rental property. You'll be unable to touch these funds without penalty for several years in most circumstances, but it is a win/win situation! You get short-term gains through taxation savings and a more secure retirement.
#7. Move To a Different Place
Many capital gains tax rates are based on the state that you live. California, for example, charges over 35% in capital gains taxes when combined with the national level responsibility, creating the second-highest capital gains tax in the world today. Consider living in one of the 7 current states that don't charge any capital gains taxes at all: Alaska, Florida, South Dakota, Tennessee, Texas, Washington and Wyoming.
When it comes to having a tenant for the first time, it can be pretty daunting because you are going to be the corresponding landlord and a new relationship will emerge, which will need time to grow... More
The landlord and tenant laws in California are literally the same as they are in any other state. These laws, rules and regulations are put into practice because they uphold an order, a discipline,... More
People are aware that there are different rulings in each state with reference to the landlord/tenant laws. The state of Illinois also has a set of laws. These rules and regulations are basically... More
All landlords know that before they can formally become a landlord there are a lot of things they need to understand. Landlords and tenants cannot act as such without any legal bodies involved. That... More
When entering into an agreement with a potential tenant, a landlord needs to fully understand the contract that binds them into the specific relationship of being a landlord and a tenant. Now that the... More
If you’re currently considering the option of offering one of your properties for rental purposes, you should first educate yourself about the landlord tenant relationship. For the first timers, it’s... More
Landlords have many things to think of; they have to deal with legal issues, privacy issues, and so much more. Above all, they sometimes need to deal with a problem tenant. The interesting thing is... More
Most landlords may have some idea what an Estoppel Certificate is. However, many aspiring landlords are still unaware of what this certificate is all about. Basically, a tenant Estoppel Certificate is... More
Landlords have a lot of administrative work to do when they have tenants. It seems easy to let people come and live in your home, have them pay the monthly rent and carry out your daily activities.... More
There are a whole bunch of myths about lease agreements that most people believe that are simply not true: You can't rent a property without lease agreement – Actually there are laws in every state... More