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The capital gains tax on real estate will differ a bit from investment to investment and can also change based on how much was earned. An investor will need to need to understand the capital gains tax and how applies to a particular investment. Here are some different assets that you might have that are subject to some type of capital tax gain.
Capital Class Gains on Real Estate
Capital gains tax on real estate has a few more rules than a standard gains tax. If you are an investor using real estate as an asset then you will be subject to paying capital gains tax on every dollar you earn. As an investor there is one way that you can defer the tax gains. When you sell one property and purchase another, you will need to fill out a form 1031 exchange letting you defer your capital gains tax. When you sell a property you can document your intention to purchase a new piece of real estate within a certain time frame. Once you purchase that real estate using the profits from the last sale the taxes are now deferred to the new property. You can keep reinvesting the gains into new real estate in order to defer the payment or if you choose to stop reinvesting you will pay the capital gains tax on the full amount earned.
Capital Gains Taxes, Stocks
Stocks are another asset that can be subject to capital gains tax. The capital gains tax on stocks is based on your tax bracket but it will either most likely be at 15% for many stock investors. By cashing out your stocks you will be subject to tax on them. There is also a chance that you can be taxed on capital gains for the full term of the stock or mutual fund in a slowing or recessive market depending on how it was paid out. To avoid paying capital gains invest your money in an IRA or 401K. Many of these plans let you choose the same stocks you would have but with the benefit of not paying the capital gains tax.
Capital Gains Distributions Taxes
Capital gains distributions as an asset has the benefit of always being taxed as a long term capital gain. Capital gains distribution taxes are the direct result of a mutual or stock payout. If the mutual fund has a long term capital gain then you can designate part of the earnings as a capital gains distribution. The actual rate that you are taxed at will depend on your individual tax bracket but, if you fall into a 25% tax normally then your long term capital gain will only be taxed at 15% and 5% for those in the 15% or 10% categories. This applies even if you have had the mutual fund for longer than a year.
Capital Gains Taxes Corporations
All income for corporations is taxed at the Federal Corporate tax rate. The only exception to this is Dividends which do have a separate rate. By paying taxes as a corporation rather than an individual there are far better tax rates available. There are no capital gains taxes paid on corporations.
With the many different ways that the capital tax gain laws can be applied it is a good idea to know the rules on your asset class and how much you will pay based on the amount of those assets.
