Avoiding Taxes on Capital Gains

If you own a house in one of the most desired areas of Los Angeles, like Bel Air, then you are sure to gain a profit when you decide to sell your house. However, selling a house can be a complex and daunting experience, and can become increasingly stressful with the added taxes and fees.

But, putting your home on the market makes taxes inevitable. However, there are a few ways to reduce the amount of tax you would have to pay and pocket in the maximum of profit from the sale, also referred to as capital gains.

What is Capital Gains Tax?

Before you start planning to sell your house near the Bel Air Country Club, you must understand the capital gains tax. This tax is the payment you make to the government when selling your home for more than you purchased it for. For instance, if you have sold your house for $300,000, but had purchased it for $200,000, then you will have to pay a certain percentage of the profit you made to the government.

The capital gains tax you would have to pay for earning a profit on your house sale is dependent on whether or not you lived in the property and if you did, how long you lived in your house for.

Capital gains tax is of two types:

• Short-Term: Generally, the tax percentage will be higher if you owned the house for less than a year. This is because short-term capital gains are taxed at a similar rate as the usual income.
• Long-Term: The tax percentage of long-term capital gain is comparatively lower. You will pay a reduced tax rate, which usually doesn’t go more than 20%. If you have owned your Bel Airhouse for more than a year, then your capital gains tax will be lower.

Ways to Avoid Taxes on Capital Gains for your Bel Air House

Here are three effective ways to reduce or avoid capital gains tax when selling your Bel Air home:

1. Live in the Home for Around Two Years

If you haven’t lived in the house for around one to two years before selling it, the property will be taxable. You don’t have to be consistently living in the house for two years, though. If you sell the house within the first year of purchasing it, the capital tax will be even higher because you will have to pay the short-term capital gains tax instead of long-term.

Therefore, live in the house for around two years on and off, and you will be able to sell your luxury house in Bel Air for a profit and manage to keep most of the profit to yourself.

2. Keep all the Home Improvement Receipts

The total cost of the house includes the amount you initially paid to buy it and all the improvements you made throughout the years you owned it.

If the cost basis on your house is higher, then your capital gains tax will be lower. No matter what improvements you made in your house – air conditioning installs, new driveway, updated fences, landscaping, new windows, home expansions, remodels, etc., all of these can be removed from the overall capital gains tax. Just make sure to keep all the receipts as proof of the home improvements you did.

 

3. Sell the Property after Suffering a Capital Loss

The time when you are producing a lower income than usual, then it may be the ideal time to sell off your Bel Air house. The tax rate also takes into consideration your income, which is why you can take full advantage of this time to reduce the payable tax amount.

For instance, if both you and your partner are working, then the two-income household places you in a higher income bracket, meaning a 15% capital gains rate. However, if you or your partner stopped working to pursue higher studies or are in-between jobs, then your household will be placed in the lower tax bracket, meaning lower capital gains tax when you sell your house in this period.

Owning a home typically means you will ultimately sell it off and move to a bigger or smaller home, depending on your needs. Understanding capital gains tax and utilizing these tips will help you to maximize the profits you can make when you sell your Bel Air house.

Contact Pezzini Luxury Homes right away and get expert help in luxury homes in Los Angeles for sale or purchase.

Our experts will help you in further understanding the associated costs of selling your home and determine the best time and ideal way of putting your house on the market. Dial 1-310-275-2076, and get in touch with us today!