A capital gains tax charges the difference between the original price of an asset and its sale price. Depending on their tax brackets, individuals can pay either 0%, 15% or 20%. Many prefer to avoid this tax. Experts claim that it is more of a burden than an economy stimulator and serves to take away wealth from hardworking people.
Fortunately, there are ways to avoid this nuisance without incurring a penalty. Financially prudent people can check out these four tips for avoiding a capital gains tax.
1.Match Losses To Save On Taxes
Savvy investors often sell stocks and assets when their value goes down to avoid a capital gains tax. Although this approach might seem counterintuitive at first, it actually results in financial benefits for many. When they sell assets that are slow to appreciate, then they can keep assets with fast appreciation for longer, which results in high returns.
Tax law allows individuals to deduct up to $3,000 of capital losses against sources of income. Any amount over $3,000 can be carried over to future years.
2.Benefit from the Sale of a Primary Residence
Single individuals can exclude an impressive $250,000 of capital gains from the sale of their home. Married couples can exclude up to $500,000. Investors who are considering selling but aren’t completely sure should take this into account.
3.Home Renovation
Fixing up a property is exciting for some and stressful for others. Those who are up for the challenge can purchase homes to renovate and sell. Instead of staying at their primary residence, however, they can avoid the capital gains tax and make the property they’re flipping where they eat and sleep. Once the renovations are complete, they can claim the primary residence exclusion.
Flipped homes can add value and beauty to communities as well as stimulate the economy. Many find it a rewarding side hustle or even full-time occupation.
4.Roll Your Sale into a 1031 Exchange
Individuals who sell rental or investment property can avoid the capital gains tax by investing the profits of a sale into a 1031 exchange. Tax law dictates that people have only 180 days to invest and the paperwork is so complicated that many hire advisors for assistance. Most understand the process better after completing it a few times and the payoffs can be substantial.
These four tips can help investors avoid the capital gains tax. With a little education and effort, individuals can profit from these tactics.