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How to Know if You Have to Pay Capital Gains Tax

Posted by Chris Peterson | Jul 29, 2022 | 0 Comments

When it comes to selling assets for a profit, it's important to be aware of capital gains taxes. Essentially, if you sell an asset for more than you paid for it, you may be subject to paying capital gains tax on the profit. This can include anything from stocks and bonds to real estate or even your car.

Because capital gains taxes can have a substantial impact on the value of your investment portfolio, it's wise to take them into account when formulating an investment strategy. Additionally, it's helpful to know how capital gains taxes are calculated and what steps you can take to reduce or defer them. Fortunately, this is relatively straightforward.

Generally speaking, you'll only have to pay capital gains tax if you sell a capital asset for more than you paid for it. If you sell an asset for less than what you paid, you may be able to deduct the loss from your taxes.

When it comes time to calculate the amount of tax owed, this will be based on the difference between the sale price and the original purchase price of the asset.

And finally, there are a few steps you can take to reduce or defer capital gains taxes.

One option is to invest in assets that are taxed at a lower rate. Another possibility is to hold onto the asset for a longer period of time, as this will allow you to take advantage of the inflation rate.

For real estate investors, a third possibility is to utilize a 1031 Exchange. That is a specialized way of selling an investment property that allows you to avoid paying capital gains taxes on the sale if you reinvest the proceeds into "like-kind property" within a certain period of time.

Capital gains taxes can have a big impact on your bottom line, so it's important to be aware of them. By taking the time to educate yourself on the subject, you can make sure you're making the best decisions for your financial future.

So, if you're thinking about selling an asset for a profit, be sure to keep capital gains taxes in mind. By understanding how they work and taking steps to minimize them, you can help ensure that your investment portfolio remains in good shape.

If you have questions about capital gains or you are a real estate investor and you'd like to explore strategies like the 1031 Exchange to minimize your exposure, contact us at (888) 508-1901 to schedule an appointment.

About the Author

Chris Peterson

Chris Peterson is the owner of Peterson Law Group. He practices primarily in the areas of wills, trusts and estate planning; probate and trust administration; elder law; and business law. Chris is also the owner of Brazos 1031 Exchange Company.

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