How to maximize your after-tax profits on the sale of an investment property
By Harvey S. Jacobs
This is an article with a detailed answer to a question from a reader investor. The investor wants to know the tax implications of a property investment and how to maximize after-tax profits. The basic facts are that it’s a 10-year investment purchased for $400,000 and selling for $800,000.
The investor gives other details, such as renovation costs, settlement costs, real estate commissions, and seller credits to the buyer. The pre-tax profit is estimated to be approximately $330,000.
The writer begins the answer with a rundown of possible taxes the investor may have to pay, including:
- Federal capital gains
- State capital gains
- Depreciation recapture
- Net investment income tax
The writer explains capital gains tax basics, including the difference between short and long term gains. The article goes through the calculation of capital gains for the deal in question.
The most effective tax-saving strategy available is explained; the 1031 Exchange and the author goes on to explain the method and how capital gains taxes are avoided at the time of sale.
For all of the numbers for this real-world deal, read the entire article.