How to reduce capital gains

Question

CPA'S? :  I'm looking at approximately $5,500 in capital gains tax from the sale of my house. How can I reinvest the $5,500 into an investment property and legally  have ZERO in taxes to pay? TIA!

Jeff Nash · Answer

@Champ Leong no, you cannot.  The reason for the question is that if you are saying you have a capital gain on a personal residence it might not in fact be taxable at all depending on your holding period and usage (121 exclusion - 2 out of last 5 years rule).  If it is an investment property that you sold or are selling, a 1031 exchange might come into play depending on meeting certain eligibility criteria and your goals.

Joseph Palmiero · Answer

You may qualify for a partial exclusion of the gain if you sold because of a change in employment, health reason, or unforeseen circumstance.  Another idea to offset the taxes from the gain is to make a deductible contribution to a traditional IRA, if you are eligible.

Jeff Nash · Answer

I would want to verify the calculation of the capital gains, and I assume this is based on the sale of an investment property and not a personal residence?  Also, I am not sure of your tax situation and whether you are a REP or have positive NOI or net rental income from other properties, but the way to benefit is to simply make expenditures on the properties or otherwise that are tax deductible and that you need - like repairs or personal property like small appliances that can be immediately deducted. Even though it is a small gain you could just do a 1031 exchange if you plan to reinvest the proceeds of the sale and it has not already occurred or been completed.  Me or any other tax professional would need to verify and understand your situation before affirming what is the best course of action.

Rick Pozos · Answer

Keep it a little longer.

Start renting it out.

Eliott Elias · Answer

1031 exchange. You will have had to own the property for over a year and can not use this money for a flip.

John Malone · Answer

@Champ Leong investment or personal property?

Basit Siddiqi · Answer

You can also see if you have assets that are currently at a loss and do some loss harvesting.There are potentially some rules that allow you to take section 121 exclusion(partially) if you lived in it for less than 24 months. You may want to see if any of those apply.Best of luck.

Daniel Patrick Glushko · Answer

5500 wouldn’t be worth it (for me) to enter a 1031. You are looking at ~2000 for the exchange cost. Plus the idea and stress of being put on a timeline to select and purchase a property to save 3500 just isn’t it.

Champ Leong · Answer

I've lived here less than 24 months. Any other strategies I can use?

Champ Leong · Answer

I can 1031 my personal residence into an investment property?

How to reduce capital gains

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