What are capital gains on real estate? Well, it depends. If you’re selling the property and earning a profit, then you’re in the clear as far as capital gains are concerned. If you’re renting or using it as a rental property, then you may be subject to the different rules that apply to capital gains.
If you’re going to calculate your profits after a year of rental property use the depreciated value. For instance, if you bought a house for one thousand dollars and you’ve been renting it for about two years earning about four hundred dollars per month, then you would add about forty-five percent to the value to calculate your capital gain. The same calculation would hold true if you were buying the house for a thousand dollars and you had been using it for about six months. If you were to sell the property immediately, you would immediately be in a loss because of the capital gain you’ll make.
However, you can choose to depreciate the value instead of holding onto it forever. You can also do both or just one. If you decide to depreciate the value, you will be able to report the gain to the IRS at the end of the year. If you report it as a rental income, you will receive a deduction when you file your income tax return. You can also deduct expenses incurred in acquiring the real estate, such as mortgage interest and realtor commissions.
A capital gain is different from a loss in a similar way that losses are different than gains. For example, you can’t deduct a loss from an IRA account or a business credit account. Similarly, if you have a capital gain and a loss in the same year, the capital gain is considered a taxable gain and you must pay taxes on it. However, the difference between capital gains and losses is that you have to pay taxes only on the gain you receive and never on the loss. There are exceptions to this rule. If you sell your real estate for less than you paid for it, you can claim a capital gain in the year of sale.
Generally, you are treated as if you made a gain if you sold your property for more than you spent. This means that if you live in rented property for part of the year, you are considered to have made a loss because you will have to cover your mortgage interest on that property during the year. Likewise, if you live in mobile property, you are considered to have made a gain if the mobile property was used in the year to earn rent. Again, you must pay taxes on the gain.
If you are uncertain about capital gains, consult a professional real estate agent who is familiar with the laws in your state. Capital gains are common in real estate and there are many different ways to claim them. Knowing what they are and when you can claim them will save you money and help you plan your investing. If you need more information about capital gains or any other subject, get in touch with an investment professional today.