How to Sell Your Rentals and Avoid Capital Gains Tax

author

Jolynne Ash

Buyer's Agent

Berkshire Hathaway Northwest
Cell: 503-804-1608
Email: jolynne@portlandmyway.com Licensed in the State of Oregon

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Capital Gail TaxPay 0% Capital Gains Tax Rate

The current tax laws enacted for 2018 combined with some old tax laws allowing certain “low income” individuals to not be taxed on the gain realized from the sale of assets.  This provides an opportunity for some investors in real estate to avoid costly taxes at the sale of their holdings. This can be applied to any asset held longer than 1 year which is considered a long-term capital gain.  If this works for you, January is the time to sell that long-held rental or other real estate asset and avoid the tax altogether.  You will then have the proceeds to live on during the year.

Here’s how it works. The current tax law sets the capital gain rate at 0% for married couples filing jointly with taxable incomes up to $77,200. This is the taxable income, so reduced by the standard deduction now at $24,000 for a couple, and you can have a gross income as high as $101,200. ($50,600. single filer) and still, qualify.  There are of course other sources of income you have to think about. Everyone has more than two numbers on their tax returns. I’m simplifying the math to alert you to the point that it’s worth checking this out with your CPA.

For someone who is able to control their income (Seniors) through retirement account distributions, for example, may be able to sell a rental property they have held for more than one year.  This rental property may also have a significant amount of appreciation (accumulated gain) or even deferred gain from a previous 1031 exchange. You could avoid paying capital gain tax on the entire amount. The proceeds of that sale then become cash in the bank to live on for the next year (or two) while not tapping into your retirement accounts which lowers your gross income. (Caution: again, consult your CPA to determine if this works for you. You may have Social Security income or mandatory minimum distributions for IRAs or 401Ks that you can’t avoid taking out each year).

In addition to real estate, long-term capital gains tax applies to most tangible assets including stocks or bonds, autos, and boats. If you are interested in learning more about selling your real estate assets or doing a 1031 Tax Deferred Exchange, give us a call.

Disclaimer: We are not tax advisors and do not give tax advice. This is a provision of the tax code we have seen used by other clients and so we alert you to the possible opportunity to explore with your tax advisor. 

Read our post about Selling your Rentals in Portland

author

Jolynne Ash

BUYER'S AGENT

Berkshire Hathaway Northwest
Cell: 503-804-1608
Email: Jolynne@@DreamStreetRE.com
Licensed In The State Of Oregon