Capital Gains Tax Simplified
Minimize or Eliminate Capital Gains Taxes
Capital gains taxes will significantly cut into your wealth when you sell your home, yet most people don’t even know they exist.
Before we sell a home, we ask: Do you know your capital gains tax liability If you were to sell?
Would it be helpful to get an estimate of your potential tax liability?
Would you find it valuable to learn strategies to minimize or even eliminate capital gains taxes?
With the Ihara Team, we believe it’s not about what you make, but what you keep. That’s why we focus on creating tailored plans to reduce or eliminate capital gains taxes, helping you keep more of your wealth.
How to Calculate Capital Gains Tax
Formula: Net Selling Price – Adjusted Cost Basis = Capital Gains
Expanded Formula: (Selling Price – Cost of Selling) – (Cost Basis + Improvements – Depreciation) =
Capital Gains Tax: Calculated by multiplying your capital gain by the applicable tax rate, which varies based on your tax bracket. Taxes may apply at the federal, state, and potentially Net Investment Income Tax (NIIT) levels.
Definitions:
Cost of Selling: Includes realtor service costs and closing costs.
Cost Basis: The price you originally paid or the value when the property was transferred to you.
Adjusted Cost Basis: Original cost basis adding improvement value or subtracting depreciation on investment properties:
Adding Improvements (with receipts): Renovations, additions, or upgrades that increase the property’s value (must have documented receipts).
Subtracting Depreciation: A reduction in the value of improvements, claimed for investment properties over time.
Example
1) Sale price - Cost of selling = Net selling price
$1,000,000 - $70,000 = $930,000
2) Cost basis + Improvements = Adjusted cost basis
$200,000 + $ 100,000 = $300,000
3) Net selling price - Adjusted cost basis = Capital gains
$930,000 - $300,000 = $630,000
4) Capital gains * Capital gains tax rate = Capital gains tax
$630,000 * 30% = $189,000
Disclaimer: Disclaimer: The information provided is for general informational purposes only and should not be considered financial, tax, or legal advice. We strongly recommend consulting a Certified Public Accountant (CPA) or qualified tax professional to understand how tax laws apply to your specific situation.