Selling your rental property can be exciting, especially if there is a profit involved. Finally, your hard work has paid off and you have made income off of your rental property. However, remember to take into account the tax consequences in selling your investment. Specifically, you might have to deal with a capital gains tax if you have made money on the sale of your rental property.
There might be some ways to reduce the amount of tax owed. Of course, specific individual income levels affect the amount of taxes owed on the sale of a property, as well as precise rules and regulations in any given state.
Some things to look out for to help reduce capital gains tax are:
Use of a 1031 exchange
Section 1031 of the IRS code allows an individual to take the gains from the sale of a rental property and defer all of the taxes. The requirement is that you have to take all those profits and invest them into another similar investment property. This can be beneficial if you are planning on continuing to invest money into real estate and to grow your portfolio. If you do not need the cash from the sale of the rental property, it makes sense to defer the taxes and invest in more rental properties to grow your wealth.
Turn loss into win
For those individuals with a larger portfolio they can use a loss on an investment to help reduce their gains on the rental property sale. You could use the loss on the sale of a securities investment to offset the capital gains on the property sale to potentially lower the tax bill. This helps turn things into a win-win situation. Reducing your taxes is always a great thing to do when you can do it.
Add to retirement accounts
You might be able to take some of those rental sale profits and contribute them into your IRA or 401k. This is fantastic because it helps lower your capital gains tax and helps secure your retirement future. The specifics of this situation will depend on each individual’s financial scenario. Keep in mind that the money cannot be withdrawn for some time without having to pay a penalty. It is always best to consult a tax professional to get further guidance on your retirement accounts.
If you would like to sell your rental property quickly contact us today! Give us a call at 240-801-6055 or visit http://landlordsellers.appreciatedpropertysolutions.com