When you sell a capital asset for more than it cost when you purchased it, you experience a capital gain. Capital assets include equities, bonds, precious metals, gems, and property.
When it comes to taxes, the IRS treats short-term capital gains differently than long-term capital gains. A short-term gain is realized when an asset is sold after being owned for one year or less, and these gains are taxed as regular income. This means that short-term capital gains are subject to marginal tax rates, which range from 10% to 37%.
On the other hand, long-term capital gains are taxed at a more favorable rate, and they can even be tax-free in some cases. Therefore, if you're considering selling an asset, it's important to know how long you've owned it and what the tax implications will be. By taking these factors into account, you can help minimize your tax liability and maximize your profits.
Deferring Capital Gains Using a 1031 Exchange
No matter what your tax liability is, you may be able to avoid paying capital gains altogether by utilizing a 1031 Exchange. This process allows you to roll the proceeds from the sale of your property into a new "like-kind" investment. By doing this, the IRS will allow you to defer paying any capital gains taxes until you eventually sell the replacement property. Note that there are certain guidelines that must be met for a 1031 Exchange to be valid, so it's important to speak with a Qualified Intermediary to ensure that your transaction qualifies.
Get Started With a 1031 Exchange!
By deferring the amount of capital gains taxes you owe, you can use these funds to acquire a larger or higher-yield property than the one you are selling. Really, the opportunities are endless with the right tax strategy. If you'd like to learn more about your options, we are here to offer guidance and assistance. To schedule a complimentary consultation with the mention of this blog post, simply call (888) 508-1901.
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