Are you thinking about selling your Richmond house? Depending on your property, capital gains taxes may become a factor. However, there is a way to defer your taxes! Learn how to avoid paying taxes when selling your Richmond house in our latest post!
You might be excited to sell your house for a big profit, however, Uncle Sam is always looking for his cut! Capital Gains are assessed based on how much you paid for a property and what you actually end up selling it for. Capital Gains taxes aren’t just found in real estate. They are also assessed on things such as stocks, bonds, cars, and boats. When it comes to real estate, there are many exclusions you can take advantage of before having to pay. Capital gains taxes kick in when:
- You are single, and make more than 250k profit on the sale of a home
- You are married, and make more than 500k on the home
That said, it is important to keep all of your home repair receipts as this is added to what you paid to determine the cost basis – or the actual amount of money you have put into the property before selling it.
These numbers might sound far-fetched, however, a home purchased years ago for $150,000, that sells for $550,000 today would easily fall into this category. In order to defer the amount of taxes you owe, you will want to do what they call a “1031 exchange.”
What Is It?
You might have heard of a 1031 exchange in the past, but do you know how it works?
A 1031 exchange occurs when you reinvest the proceeds from the sale of one property into another property. In doing so, you will be able to defer the amount of capital gains taxes you owe. The process is fairly simple and used by investors all of the time in order to defer property taxes they owe. There are a few qualifications that must be met, but in doing so you will be able to save yourself thousands of dollars.
The qualifications of a 1031 exchange are pretty standard. You must have lived in the property for at least 2 of the past 5 years and it must be your primary residence. You will not be able to use it if you have claimed this exclusion on another property within the past 2 years or if you have purchased another property using a 1031 exchange within the past 5 years.
In addition, the property you purchase must be of like kind. This is a pretty broad term. You can sell a piece of land and reinvest in a house. Or maybe you want to sell a duplex and buy land to develop. Any of these options will fly.
At Patterson Property Solutions we work with 1031 exchange customers all the time! We are professional investors and property sellers who have a wide array of properties available at any given moment! Our inventory changes daily, with many types of properties to choose from. If you are looking to avoid paying taxes on a piece of property you wish to sell, we are here to help you with a solution! We will walk to through the entire process, saving you thousands of dollars along the way!