Real Estate Capital Gains and Capital Losses

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These days a lot of people are asking questions about how to take losses when they sell or otherwise dispose of their property, but there are still people making money on the sale.

Today, let’s look at capital gains and capital losses. We’ve known for years that the Bush tax cuts were going to run out this past year (2010) and so it was almost a given that the capital gains rates were going to go up. There were fewer people doing like kind exchanges with properties that had gains because it was assumed that the rate was going up. Since a like kind exchange defers the tax until a later date, it seemed to make sense that you’d want to pay tax now at a lower rate. Then, Congress extended the Bush tax cuts and we still have the same lower rates through the end of 2012.

There’s a lesson in that for all of us. When it comes to tax planning, the law you have today is worth a thousand “what if’s” because even when it seems a 1005 shoe-in, things change. And in this case, the capital gains change the pundits all claimed was certain didn’t happen. Make your tax decisions based on laws today not what ‘might’ happen tomorrow.

The capital gains rate for 2011 and 2012 will continue to be 0% if you’re in the 15% or lower tax bracket. If you’re in the 25% or higher, it tops out at 15%.

Capital losses are different. While you want to have your real estate qualify, if at all possible, for capital gains treatment, you don’t want to have it qualify for capital losses. That’s because capital losses are first used to offset capital gains and then you can take $3,000 in addition. If you just lost $300,000 on a property and have no capital gains, it will take you 100 years to take advantage of that loss. Ouch.

Capital gains and losses are reported on your Schedule D of your Form 1040.

If you’re looking at gain or loss on the disposal of real estate, make sure you have an experienced real estate tax pro review your options. One slight change could mean thousands of dollars of difference in your taxes.

For more information on how to save money on real estate, check out Real Estate Loopholes Home Study Course.

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