Everything you need to know about capital gains tax and real estate investment

By: Taro Chellaram /Real Estate Articles/Apr 01, 2022

Everything you need to know about capital gains tax and real estate investment

What Is Capital Gains Tax?

Did you know that, as a property owner, you are expected to pay a percentage of the profit that you earn when you sell your investment? This is what is known as capital gains tax. Capital gains tax is the tax levied on the profits from the sale of investments, if the investment was held for at least a period of one year before being sold. The taxable percentage differs from person to person, as it is calculated based off your taxable income of the year.


Did you know that there is a very high change you are exempt for paying capital taxes? It’s all thanks to something the government did, called Taxpayer Relief Act 1997. This was one of, if not the largest tax reduction law passed by the US government. This act offered relief to college students, parents, small business owners and others new to the investment world through different benefits. This is what an overview of these exemptions looks like to different population categories:


The IRS offers an exemption on the first 250,000 for those who are single and 500,000 for those who are married and are filing taxes jointly. One thing to remember though is that, when it comes to homes, this rule is applicable only towards the primary residence of the owner and can only be allowed once every two years.


According to recent reports by investment advisory companies, “Short-term capital gains are taxed as ordinary income, with rates as high as 37% for high-income earners; long-term capital gains tax rates are 0%, 15%, 20%, or 28%, with rates applied according to income and tax filing status.”


How does the IRS determine which home is your primary residence? It’s quite straightforward – you should’ve lived in that house for at least 2 years over the past 5 years. This means that out of 1825 days, you should’ve stayed at this particular property for 730 days or more. This best thing about this is that these 2 years don’t have to be consecutive!


2022 Long-term Capital Gains Rates
Filing Status 0% Tax Rate 15% Tax Rate 20% Tax Rate
Single < $41,675 $41,675 to $459,750 > $459,750
Married filing jointly < $83,350 $83,350 to $517,200 > $517,200
Married filing separately < $41,675 $41,675 to $258,600 > $258,600
Head of household < $55,800 $55,800 to $488,500 > $488,500
Applicable to the Sale of a Principal Residence

 Another tip for you to be exempt from paying capital gains taxes is to reinvest the proceeds into another property though a 1031 Exchange.

Don’t wait! Start investing in profitable real estate ventures with the help of TC Global and their team of highly qualified brokers and advisors.

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