Tips for Deferring Capital Gains Tax
A capital gain is a term used in taxation to refer to profit from the sale of a non-inventory item. A capital loss results if the cost of the same item is higher than the proceeds received from its sale. It is mandatory to report capital gain to taxation authorities. At times, capital gains taxes amount to large amounts, but you can defer or avoid them, which will limit your liability. Here are top 5 tricks for deferring capital gains tax effectively.
Make certain town an asset for a minimum of a calendar year before thinking of its disposal. Note that, one year from the date of your intended sale, the tax rates could be lower, and that will translate into savings. Waiting to sell after a year will result in savings as high as 20 percent.
There is a legal loophole that allows persons who sell investment or rental property to avoid capital gains taxes. You can use it if, within 180 days of the sale of the mentioned property types, you channel the funds received into a similar investment. It is a complex exchange that may require you to find a tax expert to handle. A notable advantage of using this method to defer capital gains tax is that almost everyone who uses it always succeeds.
Deposit the sale proceeds into a tax-deferred or tax-exempt retirement fund. The trick here is to defer the payment of tax to a later date when a lower tax bracket will be in use. However, if the proceeds are substantial, it is advisable to use this trick in combination with another one because there are limits in place to govern the amounts that can be added to these accounts.
If you own a high-value asset, you can defer the payment of capital gains tax by handing it to a charitable trust so that they can sell it on your behalf. Charitable trusts are usually tax-exempt; and so, if they sell it for you, there will be no issue of capital gains tax to worry about. The trust will then transfer to you a specified portion of the asset’s cost over a certain precise period. If there is anything left over, it is donated to charity.
You can defer the payment of capital gains tax if you have the ambition of educating your kids or grandkids. By depositing the proceeds of an asset sale to a college savings account, no capital gains tax liability will arise. You can also get similar effects if you have a health savings account that you will deposit the funds to. This account is primarily meant to cater for medical costs that may arise in the future and are tax-exempt. For you to benefit from this exemption, the funds withdrawn must not be used for other purposes other than medical.
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