Capital Gains

[Karen Moysi]

If I know I'm going to have capital gains , would it be best to spend the money that's going towards tax on the gain or spend the money on capital improvements to bring up the cost basis?

[Account Closed]

Karen, I would bet that the capital improvements are going to raise the fair market value of the property by as much as, and probably more than, they are going to increase the basis.  So the difference between the two, your capital gains, will still be the same, or more, and your tax liability at least as much, and maybe more.

If you are looking to avoid paying tax on your capital gain, you can think about selling the property on an installment sale over, maybe 20 years, and you only pay one-twentieth of your tax liability each year, as you receive the profit, or you can think about using all of your net sales proceeds to purchase another investment property, and thereby defer the capital gains tax on the sale.

Michael Lantrip