What is capital gain on real estate?

by Sheida Rezazadeh 09/03/2023

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Among the myriad costs associated with selling a home, taxes for capital gain on real estate can take up a significant portion. You'll have to pay capital gains tax depending on how long you've owned the property before selling it, and rates can vary by region.

Here is a basic rundown of capital gains tax to help you learn more:

Short-term versus long-term capital gains tax

When you start thinking about selling an investment property, one of the most important questions to ask is, “When did I purchase it?” Capital gains and losses can occur over short or long periods, and have different tax rules. If you've had the asset for less than a year, it counts as short-term.

How much capital gains tax can I expect to pay on real estate?

Short-term capital gains taxes use the same percentage as income taxes, which can be upwards of 37%. A long-term capital gain on a property you've owned for more than a year is taxed at a lower rate of 15% to 20%.

How real estate taxes work

State and local authorities collect taxes on real estate to support public services, school projects and other services - just like income tax. However, real estate tax rates are determined by multiplying current tax rates by the value of the properties. Tax rates vary among jurisdictions and may vary depending upon the assessed value of the home.

How to avoid capital gains tax on home sales

The simplest way to reduce the cost is to stay in your house for more than one year. This will take you from short term capital gain into long term capital gain, and a lower tax rate.

You can avoid capital gains tax by completing a 1031 exchange, which is a specific type of real estate transaction for investment properties. This is a popular method among real estate investors, but only works if the property you're selling is not your primary residence.

Taxes can be complicated, and real estate is no exception. However, understanding these basics will help you better navigate the real estate world and make the best financial decisions for your future.

About the Author

Sheida Rezazadeh

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Our philosophy is simple: clients come first. We pledge to be in constant communication with our clients, keeping them fully informed throughout the entire buying or selling process. We believe that if you’re not left with an amazing experience, we haven’t done our job. We don’t measure success through achievements or awards, but through the satisfaction of our clients.

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I find it very satisfying to be able to help my clients achieve their dreams through Real Estate. I have over 20 years experience in the Real Estate Industry. I began my career with my own investment in and management of multiple properties. I use my insight into the Real Estate industry and my vast negotiation skills to provide my clients with exceptional service. I am able to use first hand knowledge, acquired by my years of experience, to guide my clients through the process of buying or selling their properties. Whether it be Residential, Luxury, Multi-Unit, or Commercial Real Estate, I possess the Real Estate acumen to secure top dollar for my sellers and the best properties at the best possible price for my buyers! As a mother and wife I know the importance of creating the sanctuary of a home, as well as, the security that investing in Real Estate can bring to you and your family. I understand that buying or selling a home is more than just a transaction: it’s a life-changing experience. That’s why our team of highly-seasoned real estate professionals is dedicated to providing exceptional, personalized service for all of our clients. We take great pride in the relationships we build and always work relentlessly on the client’s behalf to help them achieve their real estate goals. Our team of experts represents the best and brightest in the industry, and we’re always striving to lead the field in research, innovation, and consumer education. Today’s buyers and sellers need a trusted resource that can guide them through the complex world of real estate. With our extensive knowledge and commitment to providing only the best and most timely information to our clients, we are your go-to source for real estate industry insight and advice.