Every so often, investors manage to seal the deal on the perfect piece of property. Whether by accident or out of some kind of foresight, they’re able to buy an investment property at a very low price, only to see the market suddenly take off. The value of their investment suddenly triples in value, virtually overnight.
There’s a stab of pain, coming, however, if the investor wants to sell. More than likely, the Internal Revenue Service (IRS) will impose a significant amount of capital gains taxes on the sale. Essentially, capital gains are considered taxable income on goods that are quickly “flipped” for a heavy profit.
Many real estate investors are unfamiliar with capital gains taxes until they’re faced with them, and the realization that they may have to pay 15%, 20% or even more of their profits to the government. However, there are ways around capital gains taxes.
For example, a 1031 real estate tax exchange can help. Working through an intermediary, you may be able to take the profits from your sold property and invest it in another property — without having to sacrifice any of your assets to the IRS. This is a legal method of reinvesting and is authorized by Section 101 of the Internal Revenue Code.
If you feel like it would be a mistake to hold onto an investment property any longer but you’re concerned about the capital gains taxes you may face after a sale, consider talking about the options you may have. Our office is particularly experienced with 1031 real estate tax exchanges and the necessary legal requirements. Contact us today for more information.