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Lower Capital Gains Tax by hanging on to investments

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    Capital Gains taxing can be seriously high, upwards of almost 40%. Luckily there are ways to reduce this high tax %, and it has to do with how you handle your investments, as I have come to learn over time.

    In short, one tried and true rule that works well is to not sell your stocks, investments, etc too soon. Short-term capital gains tax code does not warrant any eligibility for tax benefits. But long term does. This means that hanging on to whatever investment you have for more than 12 months can seriously net you a sizable tax break. In many cases (such as what I have experienced) you can cut the tax by as much as half.

    Key thing to keep in mind is to make sure and invest your money in prospects you deem worthy of long term investment. Approaching future investment opportunities with this capital gains tax situation in mind will likely reshape your entire strategy, as it has for me. And that is overall I think a good thing, as it leads to making smarter, more long term financial decisions, and dissuades one from making antsy decisions that they might soon regret.
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    Good point. Key is to just hang on to investments for more than a year, and you can seriously avoid crazy high tax rates. My family has reminded me of this more than once. It can make an investment look even smarter too, over time. Not always easy to do, but worth it, especially for stocks in my experience.
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    I have a specific question about this. I purchased a piece a property about 8 years ago right before the Real Estate market in my area crashed. I have been sitting on it this entire time and am now ready to build. If I build a home do I still have to hold on to it for a year or more or since I've had the property for so long does that count towards "holding on to it". Curious...
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    Laurie Wrote: I have a specific question about this. I purchased a piece a property about 8 years ago right before the Real Estate market in my area crashed. I have been sitting on it this entire time and am now ready to build. If I build a home do I still have to hold on to it for a year or more or since I've had the property for so long does that count towards "holding on to it". Curious...

    Good question. Did some reading up on this.

    Tax Aspects of Home Ownership: Selling a Home

    Avoiding Capital Gains Tax When Selling Your Home: Read the Fine Print

    I recommend giving these a good read through. From what I can tell, you have to live in the house for at least 2 years to qualify for capital gains tax exemptions, that go up to $250,000 (on profits made for the sell of the house) or $500,000 if married.

    And the profit (or capital gains earned) is the cost of the land and the cost of the house build (including any and all expenses like paying contractors, architects, etc), minus the total you sell it all for.

    So, to answer your question simply, from all I read, the house would still count as a short sided sell. But I don't think the land would. Difficult to say for sure though. I would lastly recommend talking to lawyer or tax consultant on this one. Seems very complicated and not very straightforward info online for you.

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    Also, those articles mention several loop holes for qualifying for at least partial capital gains exemptions even if you don't qualify for the 2 years rule. So I would assume that somehow, someway you can still get at least partial deductions that you won't have to pay capital gains tax on from the sale.
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    Thank you very much for your time...
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    Wondering if you know how much we will pay on Capital Gains if we make a profit of 70K on our rental investment property? We bought the house as a foreclosure for $120K and hope to sell it for $200K...and deduct around 10K of rental expenses. Our tax bracket is (after deductions) around $50K a year. We are thinking of investing the entire $200K in another property to avoid paying capitol gains. Our question is: Can we invest the $200K in 2 different properties....one for $120K and one for $80K or does it have to be one property for $200K. THANKS!!!
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    Is there a cap that one could stay under that protects them from a hefty tax regardless? Does the tax percentage slide on a scale depending on how much capital is in question?
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    JFoster Wrote: Is there a cap that one could stay under that protects them from a hefty tax regardless? Does the tax percentage slide on a scale depending on how much capital is in question?

    Good question. Yes, it does. All has to do with what tax bracket your income tax is being taxed at, and how long you hang on to the investment in question. Here's a good wiki exert about this:

    In the United States of America, individuals and corporations pay U.S. Federal Income Tax on the net total of all their capital gains. The tax rate depends on both the investor's tax bracket and the amount of time the investment was held. Short-term capital gains are taxed at the investor's ordinary income tax rate and are defined as investments held for a year or less before being sold. Long-term capital gains, on dispositions of assets held for more than one year, are taxed at a lower rate.

    I also recommend checking out that wiki page in full. Goes over every capital gains tax rate, both short and long term %s, depending upon what tax bracket you happen to fall under. (all the info provided includes references on this wiki page, so you can find the source of the citation as well)