There’s been some talk in the news recently about the possibility of canceling capital gains tax on home sales. Not sure what that means? Capital gains tax, in a nutshell, are the taxes you will pay on any profits you earn when you sell a property or other investment. The tax rate will depend on how long you’ve owned your home, stocks, or cryptocurrency etc.
If you owned your home for less than a year and made a profit when selling, you would be taxed at your normal income tax rate. Your income tax rate is based on your income. You’ll pay a higher tax for short-term capital gains than you would have you owned your property for more than a year before selling.
Consider short-term capital gains tax as a deterrent for house flippers that usually fails. The average flip takes anywhere from 3 to 6 months and most property investors sell renovated homes within a year after purchase. They don’t care about timing their investment to avoid paying higher taxes. They are in the business of making money which requires them to work fast and sell fast. However, most people don’t want to pay more in taxes than they should.
As for capital gains tax on home sales going away, that may not be a good thing. Without short-term capital gains tax more house flipping will occur. With more investment activity, prices will be impacted. You may not be able to find a forever home at a price you can afford. Yet there is a way to reduce capital gains tax on your investments.
We recommend planning the sale of an investment to minimize the impact of taxes on your financial efforts. Alloy Wealth Management offers Tax Planning services and would be happy to walk you through the various strategies we use. Call us at 800-689-3935 if you have questions or would like to schedule an appointment.