Capital Gains Tax On Real Estate – What You Need To Know!
Rent Your Real Estate & Save On Tax!
August 17, 2004
By Niles Brohey
Capital assets are assets such as real estate, shares, and businesses. Capital gains tax is a tax on profits made when trading in capital assets. Capital gains tax on real estate is much higher than the tax on standard capital assets. There are only two exceptions to this – when the property was your primary place of residence for 2 of the last 5 years or when the property had been rented out.
Capital gains tax on real estate can be as much as 20% higher than the capital gains tax on other assets. This is because there are two kinds of assets treated as special by the law which have special rates applied to them, these two types of assets are real estate and collectibles. This is not true of rental property or a property you lived in for 2 of the past 5 years, these are taxed in at lower rates or offer major tax deductions.
The tax rate on real estate is a flat 25%, this tax is high compared to taxes on other assets such as shares which are applied at between 5% and 15%. There is no back door around this tax, it will be applied to all real estate (with the exceptions set out above).
Capital gains tax on real estate you have been renting out or letting to tenants is not applied at 25%. When selling such real estate part of your profit is charged at the same rate as your income tax while part is charged at the normal capital gains tax rate (which varies between 5% and 15% depending on your income). The amount of your gain taxed at your income tax rate is equal to the amount the real estate has depreciated in value since you originally purchased it. The rest of the gain is charged at the standard capital gains tax rate.
If the property you are selling has been your primary residence for 2 of the 5 previous years you are entitled to a large deduction in you capital gains tax. A single person is entitled to make up to $250,000 on the sale of their home before they will be taxed for it.
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