The property buying process can be incredibly difficult, and the investment involved can be unbelievably demanding. So much money is involved, and you’d naturally want to save a few costs at given opportunities. Luckily, there is a way to wiggle room for taxes. The capital gains tax, for instance, is a home sale exclusion for homeowners. Homeowners are entitled to it after selling their primary home, but it takes a little bit of cleverness to get it.
A capital gain essentially happens when the sales price received for a property is deemed greater than the basis for the property in question, which could be the amount you have paid for it. Allowing it to turn into a long-term capital gain, for example, allows you more favorable numbers.
Whatever your strategy may be, certain problems may arise. It’s best to know exactly what you’re dealing with, so here are the common mistakes most homeowners make when it comes to capital gains tax:
Mistake #1: Selling property long before it qualifies for long-term capital gains
As previously mentioned, the rates of long-term capital gain are highly significant. Short-term usually comes with little to no value, so it’s always best to ensure that you know exactly when you’ve bought a property.
Ensuring that you’ve been holding an asset that has gained in value as the year passes by is crucial, as it then qualifies for a long-term status. However, keep your patience in check: don’t sell a property shortly after it qualifies for long-term—it needs more than a year, and anything less will land you in the short-term investment scope.
Mistake #2: Hanging on to investments to merely avoid taking losses
The name of the game is patience. The stock market dips naturally into lows and celebrates highs, and if you’re holding onto good investments you have total faith in, then, by all means, wait for them to regain value. If you’re doing the opposite just to avoid admitting defeat, however, it’s time to move on.
The reality is that properties go down in value and once it does, you’ve already lost the money. If you take a step back and reassess the asset, would you buy it now at its rate? If the answer is no, you will need to accept the loss and let the property go.
Mistake #3: Selling too many assets in a single year
Your tax bracket plays a crucial role in your capital gains tax rate. Selling too many assets, no matter how good the money may possibly be, can affect your tax bracket. Remember that the lower the income level, the lower your capital gains rate will be.
If you’re lucky enough to be at the lowest declared income level, capital gains will be close to nonexistent. If you sell too much at once, however, you’ll propel yourself towards a higher tax bracket, thereby affecting your rates.
The Bottom Line
Knowing you can save a few costs when dealing with property always seems like a blessing. Contrary to what many believe, capital gains tax isn’t just for the wealthy—ordinary taxpayers deal with it as well, and one can easily save thousands of dollars just by avoiding these common mistakes.
For more complicated tax strategies, however, it’s best to consult with our experts. Capital gains tax, for instance, can still be tricky to deal with but a good consultation with us at PJL Investments will help you get all the details right. Contact us now!