Builders and Contractors Exchange
Weekly Bulletin: 2 nov 2007
The Substantial Tax Benefits Of Capital Gains And Losses
One of the most commonly asked questions in tax law is whether, at the sale of real property, the gain or loss from such sale receives capital gains or loss treatment. Capital gains or loss treatment is available upon the sale of real property as long as the property has not been held primarily for sale to customers in the ordinary course of a taxpayer’s trade or business. This mean that, as long as the taxpayer has held the property for personal use, that is to say, as his or her home, vacation home, or the like, a subsequent sale of such property will generate capital gains or loss treatment.
Capital gains treatment is particularly advantageous to the taxpayer because the gain from the sale of the property is subject to tax at the rate of fifteen percent (15%), versus the graduated rates of ten percent (10%), fifteen percent (15%), twenty-five percent (25%), twenty-eight percent (28%), thirty-three percent (33%) or thirty-five percent (35%), depending on the taxpayer’s applicable tax bracket.
Capital gains take two distinct forms: (1) Long-term capital gains; and, (2) Short-term capital gains. Long-term capital gains, taxable at fifteen percent (15%) are available to property which has been held by the taxpayer for more than twelve months. Property which has been held by the taxpayer for twelve months or less qualifies for short-term capital gains treatment upon the sale of the property. Short-term capital gains do not afford the taxpayer the same advantages of long-term capital gains as they are taxed, not at the fifteen percent (15%) rate; but, rather, at the taxpayer’s regular tax rate.
Finally, a taxpayer may use capital losses to offset capital gains at the sale of the property. In the event that total capital gains exceed the total capital losses, the amount of the capital gain is included in the taxpayer’s income at the fifteen percent (15%) rate.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.