3 Tips For Offsetting Capital Gains

When you profit from the sale of an investment, you will incur a capital gains tax liability. It’s great that you were able to make money on your investment, but capital gains can be taxed at elevated rates, so many smart investors look for ways to offset paying capital gains taxes on investment proceeds. In today’s blog, we take a closer look at a few ways to offset capital gains.

Smart Moves To Offset Capital Gains

At CPEC1031, we’re always looking for ways to help you keep more of your hard earned money. Here are five smart financial moves you may be able to make in order to reduce your capital gains tax liability.

  • Consider A 1031 Exchange - We’ll start with a tip we have a wealth of experience with. A 1031 exchange allows you to move all of the funds from the sale of one property into the purchase of another like-kind property without having to pay taxes on the proceeds of the sale. If you are looking to move on from one investment opportunity and into another, a 1031 exchange is a very financially-wise move.

  • Offset With Losses - Some assets do really well, while you may lose money on others. You can sell other assets at a loss to offset some or all of the capital gains you realized on other assets. This is oftentimes referred to as tax loss harvesting.

  • Minimize Taxable Income - If you expect to have capital gains this year, you should consider doing what you can to reduce your taxable income. Increasing your contributions to your IRA or 401(k) or reducing your taxable income through other investments like municipal bonds can help to minimize your short-term capital gains rate.

You worked hard for your money, and by taking a few smart steps, you can hang on to more of it by lowering your capital gains tax liability. For more information on navigating capital gains taxes or 1031 exchanges, please give the team at CPEC 1031 a call today at (612) 643-1031.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Video - What are Capital Gains Taxes?

Capital gains is a form of taxation. It’s actually a preferred or lower rate than pay on your ordinary earned income. Capital gains in the United States at the time of this recording have a maximum rate of 20% for the ordinary appreciation that you enjoy on capital assets including real estate that’s held for investment or business purposes. Some gains are derived because you depreciated the property. Every year you took a depreciation deduction you took an incremental decrease in your basis. Over time you’ll whittle your basis down to zero on your improvements. That gain that’s calculated from your depreciation deductions is taxed at a higher rate of 20%.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Video - Related Party 1031 Exchange Transactions

In a 1031 exchange, a related party is determined in one of two ways. There are people you are in familial relations with (your mother, father, child, ancestral and lineal descendants, etc.) But it’s also people you’re in business with (your employee, agent, attorney, accountant, etc.) These are very complex rules and the net may be broader than you think when determining who is a related party. Since related party transactions are more complicated and sophisticated, it’s important to know who is a related party. It’s a good idea to consult with a tax accountant or attorney if you’re engaged with someone you’ve done business with or that you’re related to by family relation.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Video - Can a Foreign Person Purchase US Real Property?

Anyone can buy property in the United States, even foreigners. But, subject to certain limitations, when you sell the property, if you’re a foreign person there may be withholdings required where the buyer has to withhold a certain portion of the proceeds because it has to be available to pay the seller’s US property tax liability from the sale. This may complicate a foreign person’s sale of a property but generally speaking, foreign people can buy US real property. It’s just that things get a little bit more complicated when they go to sell the property.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Video - Transactional Expenses that Can be Paid with 1031 Exchange Funds

What transactional expenses can you pay when you’re doing a 1031 exchange? Normally, in a 1031 exchange all of your equity from the sale of the relinquished property go to the intermediary and get reinvested to acquire the like-kind real estate. But you’re going to incur some costs along the way. You’re going to have to pay a real estate agent’s commission on the sale of the relinquished property. You may have to pay state deed tax, transfer fees, recording fees, title company charges, etc. The IRS says in the treasury regulations that you can use a portion of the equity to pay customary transactional expenses. But remember that sometimes non-transactional expenses creep into the closing statement. The property taxes, HOA dues, liability insurance – these are costs of ownership that you’re going to incur whether you sell the property or not. When you put these on the settlement statement that could trigger some recognition of gain. You may be better off bringing some cash to the closing and paying those operational expenses out of pocket. On the purchase of you replacement property, you may be astonished to find out that the costs associated with your new loan, such as origination fees, points, MRT, and other expenses related to the loan are not considered qualified transactional expenses that you can pay without triggering some gain. So you may want to bring some cash to the closing to cover those expenses or even better, negotiate with the lender to give you a no-cost loan where they don’t charge you a bunch of fees, but instead charge you a higher interest rate. Have your accountant go through these statements line-by-line because if you wait until April 15th to show it to your accountant, it will be too late.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2023 Copyright Jeffrey R. Peterson All Rights Reserved

Defer the tax. MAXIMIZE your gain.