Learn All About Defer Capital Gain Tax

Selling an investment property in real estate can be a lucrative opportunity to increase wealth. When selling a piece of property, you should consider capital gains tax as it may influence your choices. Fortunately, a few methods exist for postponing or avoiding capital gains taxes. You can keep more funds and work to strengthen your investment portfolio by deferring taxes on capital gains. Find out everything there is to know about defer capital gains tax.

What is Defer Capital Gain Tax?

When a piece of real estate that has increased in value is sold, real estate investors may be required to pay any capital gains taxes. An IRC 1031 tax-deferred exchange allows the investor to postpone paying capital gains tax by investing in a "like-kind" exchange per current federal tax law. Any capital gain can be postponed if an investor sells an appreciated piece of real estate held as an investment and exchanges it for a property of a similar type.

How Long Can Capital Gains Tax Be Deferred?

Notably, the general rule in tax planning has always been to postpone realizing taxable income and gains whenever possible. The justification for this is that by delaying taxes, more capital can compound each year, preserving capital and increasing return on investment. But does the appeal of tax deferral remain the same if you assume that tax rates might increase?

Currently, investors only pay taxes on half of their capital gains. Capital gains are currently subject to an effective tax rate of about 26% at the highest marginal rate, whether realized by corporations or individuals (24.0% in Alberta, 26.75% in BC, and 26.76% in Ontario). Compared to almost any other form of income, including wages, rent, interest, and dividends, a capital gain has a significant tax rate advantage.

Looking For Someone To Help You Defer Capital Gains Tax?

The investor must use a qualified intermediary (accommodator), such as Full-Service 1031, LLC, to obtain and hold the net sales cash proceeds from the sale to facilitate a 1031 exchange. In Utah and throughout the United States, 1031 Exchange services are offered by Full-Service 1031, LLC.

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