Real Estate Investors Need to Know About Taxes on Sale of Their Property

Real estate investors need to know if they will owe taxes on the sale of your property – even if you are taking a loss on the sale.

Some investors realize they could be facing a big tax bill, even when selling at a loss, and they will benefit from options that 1031 tax-deferred exchanges provide.

A 1031 tax-deferred exchange is a tool for investors to defer capital gains taxes on the exchange of like-kind properties.

This tax-savings strategy can help investors avoid a tax liability when they sell one investment property and buy another.

Example:  An investor purchased a rental property in 2001 for $495,000. The property sold for $477,000, an $18,000 loss.  However, the investor faced a tax of nearly $20,000 on the sale, because taxes are paid on capital gain, not the equity or profit from the sale.  The investor had claimed depreciation on the property over 10 years of ownership, netting an $80,000 gain that still had to be reported.  If the investor/owner does a 1031 exchange, his tax bill for this deal could possibly be zero.

Questions for investors:

  • Do you know if there will be a tax hit from the sale of the property? (consult a tax attorney or income tax professional before the sale)
  • Are you sure there is no capital gain? (There is a difference between profit and capital gain.)
  • What are your investor plans?  Are you willing to invest in other opportunities?

These and other questions will help you as an investor determine when tax-deferred exchanges might work.

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By Harrison K. Long – Professional real estate representative, Realtor and real estate broker, Coldwell Banker Residential Brokerage, Newport Beach and Orange County, CA – CA BRE 01410855.   This is for information only and is not the providing of tax or legal services.  For your own investor real estate tax planning, you should work with an experienced income tax professional or contact the Internal Revenue Service.

 

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About Harrison K. Long

Professional real estate representative, real estate broker, GRI, Broker associate, HomeSmart Evergreen Realty, Orange County, California - CALBRE #01410855. Helping property owners, estate trustees, executors , administrators, fiduciaries, bankers, investor group managers, with listing and sale of properties - and people with their best decisions about real estate. Honored as "REALTOR® of the Year 2016" by the Orange County Associations of REALTORs®. Prior service on its board of directors for 2012-2014). California Association of Realtors, now serving on its board of directors. National Association of Realtors, member. Attorney member of the California State Bar Association #69137 - Contact by cell or text at 949-701-2515.
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