Thursday, December 10, 2009

Capital Gains Tax on Property in Manhattan New York

Primary Residence:The IRS allows a seller to sell his primary residence in which he has lived 2 out of the past 5 years and take capital gains tax free of up to $250,000 (for single) and $500,000 (for married filing jointly).

The 2 years out of 5 years rule does not have to be continuous as long as it was used as primary residence during that time. One way an investor can capitalize on this is to buy property, rent it out and move back in for the last 2 out of five years prior to sale.


Investment Property:
Investment property held for more than 1 year will qualify for long term capital gains tax treatment. This means a maximum tax rate of 15% at the federal level. If held less than 1 year, the maximum federal tax rate is about 36%. However, I strongly discourage buying property with the intention of selling in less than 1 year. Buyers should intend to hold at least 5 years.

Many investors use the “1031 exchange” to defer payment of taxes. This requires exchanging the old property for a like-kind new property within a set period of time. Effectively, this strategy uses funds that otherwise would be used to pay taxes to leverage and buy more property, magnifying the return potential.

We will recommend our preferred CPA and attorney to clients so that they receive the best advice.


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With the regulatory and legal environment, I need to provide this disclaimer:
The above serves as a general overview, not by a certified tax or legal professional. Always consult a CPA or attorney for tax matters as individual situations differ.

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