3.) There is no limit as to the number of times that one can declare a capital gains tax exclusion.
Previously, homeowners were entitled to a once in a lifetime capital gains exclusion. Now sellers that have owned and lived in their primary residence for at least two years are entitled to sell their residence and pay no capital gains taxes for up to $500,000 as a married couple, and up to $250,000 as a single homeowner. This capital gains tax exclusion can be taken every two years. Should extenuating circumstances force you to sell your home before a two-year period, I recommend that you speak to your accountant. There are exceptions whereby you may be entitled to declare a partial capital gains exclusion.

4.) Until 2008, capital gains are taxed at 15%.
To fully realize the dramatic implications of a 15% tax rate, we must remember that at one time capital gains were taxed at a rate in accordance with one’s tax bracket—a minimum rate of 28%! Until very recently, capital gains were taxed at a rate of 20%. Just this past May, President Bush further reduced the tax rate of capital gains to 15%. This considerable reduction can save sellers a hefty dollar amount in tax payments.

5.) Real estate investors can utilize the 1031 Exchange.
All of the above capital gains tax strategies apply to primary residence transactions. Investors can take another path of action when they choose to sell their real estate holdings. When one sells an investment property, they need pay no capital gains taxes if they purchase a like property of greater value within a specified period of time. One must identify the replacement property within 45 days, and close on the property within 180 days. This is known as a 1031 Exchange, and there are additional guidelines one must abide by in order to qualify. Most notably, one must hold the property for a period of at least one year before making the exchange.

Clearly, knowledge is power. Real estate is widely recognized as the healthiest portion of our economy, and armed with the proper knowledge you can use the real estate market to your advantage. Whether your personal goal is to live more comfortably or to broaden your portfolio, today’s tax laws make purchasing real estate more appealing than ever.

Look for Nicholas S. Gouletas’ column every two weeks. Nick welcomes your questions and suggestions. Please forward any feedback to Nick at: REquestions@americaninvsco.net

Reprinted from Chicago Tribune July 27, 2003

Knowledge is Power

It’s been said many times that knowledge is power, and certainly no one would dispute the wisdom of this statement. When looking to build wealth and live well through real estate investment, possessing the proper knowledge clearly gives one the edge in achieving this desirable goal. In my last column, we discussed the benefits of purchasing real estate with low interest rate financing. Today, I want to draw your attention to the fact that today’s tax laws are more favorable for real estate transactions than ever before in our country’s history. President Bush has recently added to the many advantageous tax laws by instituting a favorable change to capital gains tax rates. Capital gains taxes refer to the taxes one must pay for any profit made when real estate is sold. Read on for a brief course in current tax strategies as it relates to real estate transactions. Having a basic understanding of these laws will give you the necessary foundation to make wise real estate ownership decisions.

1.) There are standard allowable tax deductions that come with home ownership. When one owns their own home, they are entitled to certain tax deductions which clearly add to the value of home ownership. These deductions include: the mortgage interest on your primary (and secondary) residence, your property taxes, the interest on a home equity loan, and points you paid when purchasing the home. You may also be entitled to additional tax deductions, such as for home improvements, if you meet certain requirements. Plan to meet with your accountant regarding your individual circumstances.

2.) There is no age restriction when declaring an exclusion in capital gains taxes. Homeowners of any age can now declare a capital gains tax exclusion for up to $250,000 ($500,000 if they are a married couple filing jointly) when they sell their home.