![]() ![]() The complete nuances of these rules are beyond the scope here, but a 1031 exchange is arguably the best way to avoid this tax on rental properties. So, if you have a $500,000 home, sell that, and use the proceeds to buy an $800,000 multi-family unit, you can use a 1031 exchange to avoid capital gains tax on that $500k sale. This provision lets investors swap similar properties. Investment properties cannot use Section 121, but they can conduct a 1031 exchange. For many primary residences in the Charleston area, this might be enough. The first way, as discussed above, is the Section 121 exclusion which exempts $250k/$500k from this tax. There are two ways to minimize the amount you will pay for capital gains taxes. ![]() The prospect of such a tax bill leads many to wonder: is there any way to avoid these taxes? Combined, that means it is theoretically possible to lose up to 23.92% of your home's increased value to taxes alone! That means if you take advantage of appreciation and your home sells for $500,000 above what you paid for it many years ago, you could owe up to $119,600 in taxes, both to South Carolina and the Federal government. The top federal capital gains tax rate is 20%. The good news is South Carolina does follow federal sections 1, but for the 1031 exchanges, you may have a taxable gain in the future. However, you can subtract up to 44% of your net South Carolina capital gains, so if you sell a home in South Carolina for a $100,000 profit, your South Carolina tax on that gain would be approximately $3,920. Long-term capital gains are included in South Carolina taxable income and taxed at rates up to 7%. If you are selling your home in South Carolina or considering buying an investment property here, you should know that South Carolina also does tax capital gains. Lastly, please note that those on extended duty in the military can elect to suspend the five-year test for up to ten years. If you sell your home for a gain that is more than the exclusion amount, you'll pay capital gains tax on the amount above it.Īs a quick example, if you bought a home as a single filer for $200,000, lived in it for five years, and are now selling it for $400,000, the Section 121 exclusion means you won't pay any capital gains taxes. Section 121 provides an exclusion amount of $250,000 for single filers and $500,000 for joint ones for the sale of any home that you have used as your primary residence for at least two of the past five years. You may also owe capital gains tax on the sale of your primary residence. As a quick example, if you purchased an investment property for $200,000 and sell it for $500,000, you'll owe real estate capital gains tax on that $300,000 increase. If you are selling a second home, not your primary residence, you will owe capital gains on the total increase in the value of your property from the time you bought it to the time you sold it. You sell your primary residence and have a capital gain of more than $250,000 for single filers or $500,000 for joint filers.You are selling a second or investment home. ![]() Federal Capital Gainsįederally, the capital gains tax usually applies when one of the following conditions are true: It will apply to some people and not others. Part of the reason why many homeowners are caught off-guard is that the real estate capital gains tax is not entirely straightforward. Not doing so could leave you with a hefty bill to the IRS! Real Estate Capital Gains Tax: When Does It Apply No matter what type of property you're looking at buying or selling in South Carolina, it's usually best to understand your potential capital gains situation first. Or, if you're looking to sell a rental property, you might wind up triggering a tax debt there, too. This tax can sometimes rear its ugly head, especially if you're looking to downsize from a high cost-of-living place to a lower cost-of-living one. One area where investors and homeowners can sometimes find themselves afoul is the real estate capital gains tax. Unfortunately, the tax laws can sometimes seem opaque and, if you're not careful, you could trigger a massive tax bill without even realizing it. There are many advantages to buying, holding, renting, and even selling real estate. Real estate can sometimes be a complex subject. ![]()
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