How to Use a Washington Hard Money Loan to Lower Taxable Profit
Every real estate investor wants to make money when selling an investment property. But foresight and strategy is essential to success.
Investors who flip houses or buy and sell rental properties know that profitable returns can come at a cost. If the property you’re selling has appreciated significantly, you may owe a hefty amount in capital gains to the IRS come tax season.
Experienced real estate investors plan ahead to minimize or avoid capital gains tax. Here’s how!
How Does Capital Gains Tax Work in Real Estate?
Capital gains taxes are applied when you sell an investment property for more than you paid. In simple terms, subtract the original purchase price plus qualified expenditures (i.e., improvements and upgrades) from the final sale price. The remaining profit counts as a taxable gain and must be reported to the IRS in the year the property was sold.
Tax rates depend on several factors, including your income, marital status and – most importantly – length of property ownership. Both short and long-term gains are taxed. And an investment property doesn’t receive the same exclusions as a primary residence. So, it pays to plan ahead.
3 Ways to Strategize Real Estate Investments & Capital Gains
- The longer you own a rental property, the lower the capital gains will be when you sell. If your rental investment has significantly risen in value, consider converting the property into a primary residence for at least two years prior to selling.
- Defer paying taxes on capital gains by reinvesting your profit in a “like-kind” real estate purchase. IRS Section 1031 allows investors to sell an investment property and buy another property at equal or greater value in the same tax year.
- Lower the amount of capital gains taxes on a rental property sale by taking qualifying deductions. Include property upgrades and repairs, loss of rental income, closing costs from the property sale, and legal fees.
With some planning and know-how, you can reduce capital gains tax and ensure a higher profit on your real estate investment.
Let Our Washington Private Money Loan Team Help
The more you know about the real estate industry the better you’ll be able to meet your investment goals. Private money lender Gregory M. Russell has helped Washington real estate investors successfully build their portfolios for over three decades. We have a keen understanding of the market and what it takes to make a profit. Our equity-based, hard money loans provide streamlined financing without the hassle of a conventional lender. So, when you want to make deductible improvements or upgrades to an investment property that may help you lower capital gains, our direct private money loans are a great solution. Call 1-888-477-0444 to learn more and begin the loan process today. Or simply complete our online loan request form. It’s that easy!