Imagup General Magazine 2024
Filing taxes is a disheartening yet unavoidable part of life. Letting go of your hard-earned money is no easy task, especially when you have some serious cash coming in from the sale of a property in a tight real estate market.
Fortunately, there are indeed some creative ways to turn around an overwhelming tax situation to your benefit. Take a look at these four options that are feasible and could help you save significantly.
1. Get done with the Capital Gains Tax
As much as this confuses you, the simple strategy here is to eat the frog first. By addressing the Capital Gain tax right away, you will not have to worry about the amount getting locked into any other tax strategy. On the brighter side, this tax rate is much lower than income tax, oftentimes making it the wiser choice.
Even if you do not pay it right away, at the very least, compare it with the other choices. Draw a comparison based on the numbers from federal, and state investment tax to see which would work best for you,
2. Spread Out the Income
The installment option is a very effective long term strategy in keeping out your income from the higher tax brackets. Essentially, you would be receiving payment from the buyer in multiple installments over a period of time. Find a real estate agent through UpNest who can help you reach such an agreement with the buyer.
Installment sales involve another set of legal and investment strategies other than tax planning. Aspects such as security from the buyer, interest rates, and several other concerns need to be discussed. However, as complex as it is, if you qualify for an installment sale under the IRS rules, then this is one of the best ways to save on taxes. Check out Expattaxonline and ExpatUSTax for your tax planning and general tips on budgeting.
3. Go for a Like-Kind Exchange
Like-kind exchange enables you to sell one property and purchase another of equal or higher value, thus deferring the tax. This could last indefinitely or until the second property is sold. Taxpayers are not limited to one property alone but are allowed to exchange multiple properties. There are indeed some rules binding the timing and exchange; however, these are reasonably flexible.
The one critical thing to note here is finding a qualified mediator to overlook the exchange. The accommodator is the one who brings the parties together and checks upon the IRS 1031 rules to facilitate the transactions. If this situation is feasible for you, look for realtors near you using services like Upnest, so make sure to check reviews here to see if properties are available for swap in the market.
4. Opportunity Zone Investments
OZ investments allow investors to reduce taxable gains if they reinvest capital gains into designated real estate zones. The program was designed to uplift economically struggling communities. It also allows for tax-free growth, with incentives available for corporations and partnerships. The program entails certain conditions based on the designated areas and percent of assets in OZ.
To qualify, a taxpayer has to invest in an Opportunity Zone property within 180 days of receiving a capital gain from a property. It would be wise to consider this option before you make a sale in order to be able to go through the other purchase within the required time. There are guaranteed tax savings for the immediate time after purchase and well into the future.
If tax savings is a concern, then you need to discuss the possibilities with both your realtor and your accountant before you agree on the sale. Planning can help you benefit more than waiting until the last minute to figure out a tax strategy.
