What is CAPITAL GAINS Tax on REAL ESTATE?

What are capital gains in Real Estate? In this video, I discuss how capital gains are computed when you sell your property as well as the exemptions that may apply whether you are married or single.

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Capital Gains Explained

Capital Gains are any profit you make when selling a property whether it be a primary residence or any investment property.

What are Capital Gains Taxes in California?

Long-term capital gains tax is a tax on profits from the sale of an asset held for more than a year. Long-term capital gains tax rates are 0%, 15% or 20% depending on your taxable income and filing status. They are generally lower than short-term capital gains tax rates.

How can I avoid Capital Gains on Real Estate?

There are a few ways, If you sell a primary residence in the state of California you can be exempt from Capital Gains taxes if you live in the property 2 of the last 5 years. There is an exemption of up to $250,000 if you are single or $500,000 for a married couple.

If you sell rental or investment property, you can avoid capital gains and depreciation recapture taxes by rolling the proceeds of your sale into a similar type of investment within 180 days, this is called a 1031 Tax Exchange after the tax code.

Example of Capital Gains

Let's say you purchase a home for $500,000 as a primary residence and live in it 2 of the last 5 years. Then you sell the home for $1,000,000. That leaves you $500,000 in profit from the home (minus real estate commissions, etc.....). If you are married then you wouldn't have any taxable income because of the $500,000 exemption but as a single person you could have up to $250,000 in taxable income (the first $250,000 of profit is exempt while the additional $250,000 could be taxable). Keep in mind that any improvements to the home as well as real estate commissions can also be added to your cost basis and would be exempt for capital gains tax.

As I mention in the video, I'm not an accountant and don't pretend to be so if you have tax related questions, you should consult with a professional. This is not advice.

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