Avoiding Taxes when Selling an Investment Property or Home

Bypass the Capital Gains Tax!

We all have to pay taxes on almost all income we receive, fortunately there are several tax breaks available for us to take advantage of if we legally qualify for them. This is known as tax avoidance. Our judicial system realizes that, as citizens, we should be able to take advantage of any and all tax break laws available to us without the risk of being penalized for doing so, even if we knowingly arrange our business dealings in order to qualify for particular breaks. On the other hand, there are those that outright fail to even report certain income. This is known as tax evasion which is punishable under law and can carry hefty fines and/or jail time if convicted.

When selling an investment property, there are several steps that you can take to reduce or eliminate capital gains taxes that would normally be owed to the government. If your note were to be treated as capital gains, you could face very high taxes for selling the property. These include a 5% tax for those in the 24% and under tax brackets, a 15% tax for those in the 25% and higher tax brackets, and/or a 25% tax for the sale of property that has depreciated during your ownership to offset tax credits you may have received in past years.

You can also have the property qualify for ordinary income by living on the property as your primary residence for a total of two years out of the five years prior to selling it. These two years also do not have to happen at the same time, as long as they total 24 months. If you do this, you can receive up to $250,000 (if filing as single) or $500,000 (if filing jointly) without owing any taxes. It is important to note, however, that you can only qualify for this tax break on one property every two years.