Displaying items by tag: capital gains tax

Buying and selling real estate properties can be quite lucrative for investors, but incurring capital gains taxes can weaken profits. What if there were ways to limit capital gains taxes on properties? In a recent article in SmartAsset, Ashley Kilroy suggested a few different ways for investors to limit their capital gains on real estate properties. The first to employ tax-deferred funds. For instance, you don't have to buy real estate with cash. You can use your IRA or 401(k). By depositing profits in your account, it allows your money to grow tax-free. Second, you can make the property your primary residence. The IRS exempts primary residence sales from capital gains taxes up to $500,000 for married filers and $250,000 for single filers. Third, employing tax-loss harvesting can help you avoid capital gains, assuming you are selling one property for a loss and another for a profit. Fourth, utilizing the 1031 Exchange allows you to use the income from the sale of one property to purchase another property of equal or greater value. In this scenario, you wouldn’t have to pay taxes on prior depreciation deductions. Fifth, the IRS allows rental property owners to deduct an annual depreciation amount from their income. Sixth, you can deduct the costs of managing property through itemized deductions, which lowers your tax burden. Seventh, improving your property boosts your property basis which can shrink your capital gains taxes and increase your property value.

Finsum:A recent article on SmartAsset provided seven different ways investors can limit their capital gains taxes on their real estate properties.

Since May, President Biden has been pushing a social spending bill that would significantly increase the US’ social safety net and do so by raising taxes on the wealthy. The two primary tax changes Biden is planning for individuals focus on inheritance taxes and capital gains taxes. These plans have spooked US advisors and their clients because collectively they could create some very significant increases in taxation. However, Biden’s plans for the whole bill seem to have taken a major hit in the last few days, as the very hot inflation reading on the economy has many politicians considering whether a huge spending bill would only worsen the issue.

FINSUM: We have been following this saga very closely and we believe the inflation numbers are the death knell for this bill. Biden was already facing major opposition on spending and taxes in their own right, and now some of the benefit of the economic firepower is being called into question.

(Washington)

Financial advisors have been highly focused on the prospect of the Biden Administration imposing a new capital gains tax rate. In particular, the abolition of the “step-up in basis” at death that inheritors currently benefit from. The popular parlance that has emerged in the industry is “death tax”. Clients generally hate this new proposal, but one of the underappreciated risks is the major liquidity risk that the rule presents. On many assets, capital gains taxes could be large—and take a large amount of cash to pay, cash that many inheritors may not have.

FINSUM: One typical example is on US farms, where land has become hugely valuable over time, but where the actual farming business runs on slim margins. This means inheritors may have high wealth in terms of assets, but little liquidity, creating a significant tax debt under Biden’s proposals.

(Washington)

Biden’s big ‘death tax’ has been spooking advisors and their wealthy clients for months now, and there are very major concerns over if and when it will be implemented. Well we have good news and bad news today. The good news is that both the House Democrats and the Ways and Means commission have put forth proposals with significantly lower tax rates than Biden’s initial budget. The House Democrats, for instance, would keep all-in capital gains taxes at a max of around 28.8% (counting the surtax). The bad news is that a recent adoption by the Ways and Means Commission puts the cutoff date for any company sales that would be affected by Biden’s much bigger capital gains taxes as Sept 13th (for sales with a binding contract prior to that date).

FINSUM: Overall, the direction of the proposals is getting more favorable for the HNW community, but there is still a LONG way to go.

(Washington)

Advisors and their clients have spent much of this year worrying about Biden’s tax plans. Two of Biden’s budgetary priorities to raise tax revenue fall squarely on the wealthy: nearly doubling capital gains taxes and the elimination of the step-up in basis in inheritance. Well, speaking on condition of anonymity, according to Bloomberg, Washington insiders are saying the elimination of step-up in basis (often panned as a “death tax” by critics) seems be heavily watered down, or maybe dead altogether. The proposal received heavy opposition and Democrats may have already backed away from its inclusion in the budget plan, or may go with a heavily diluted proposal.

FINSUM: So there is also a big knock-on effect here as well—it means the Democrats likely won’t hike the capital gains taxes to 28% or more on the wealthy, as hiking it much without having eliminated the step-up in basis will likely end up costing the government money.