Tax Saving Strategies For Capital Gains on Rental Property

Have you recently sold any of your rental property? Are the taxes on your capital gains are a burden for you? Are you looking for some way out to reduce these taxes and keep most of the profits you made from this transaction?

Then you need to know some intricacies of capital gains tax rules.

If you had purchased rental property at a lower price and now sold it with a respectable margin on it, this difference you could get is the capital gain and the same is taxable.

Remember, IRS gives preference to home owners. An average home owner will be charged leniently as compared to a property investor. So the capital gains tax varies as per different types on property owners.

One good thing about the capital gains tax is that it is lower than the income tax. It is convenient if you buy the property and wait for one year before you sell it. This way you will have to pay taxes at an average rate of 10 to 25 %. But if you plan to sell your rental property before one year, then your earning is considered as short term capital gains and you have to pay heavy taxes on it which may be same as the ordinary income tax.

If you have your rental property overseas, you need to check the capital gains taxes rules over there. As in some countries like United Kingdom to encourage foreign investors, they do not charge any tax from them for their capital gains.

Some useful tips for saving on this tax:

You can avail the benefits on tax savings by becoming a home owner than a property investor.

To qualify to the criteria of home owner, you have to stay in your rental property for a minimum of 2 years. You may have rented it in past  but then you have to stay in it for two years out of five years block before you sell off. Then it will be considered as your own home for tax purposes.

If you are a married couple selling your own home, the profit of first $500,000 is not taxable as against a sole owner who is eligible for tax exemption on the first $ 250,000.

If your sale is just a rollover, you may be charged absolutely nothing towards your capital gains. So you are selling your rental property only to purchase a new property of that type, it will be a rollover.

This rollover refers to section 1031 of the internal revenue code. To satisfy the clauses of this section you have to finalize on a new property within 45 days of the sale and the deal has to be completed within 6 months.

Remember, selling your rental property in cash emergencies is not a good idea. Then it is difficult to reduce the liability on capital gains. And this is the reason why I advise property owners to put aside some of your funds for emergencies such as major repairs.

Tax Saving Strategies with Stock Trading

If you trade in stocks, you need to have tax savings strategies in place, or come April 15, your profits will look a lot smaller after the IRS has taken its share.

However, the good news is that there are certain tax savings strategies with stock trading that you can implement to reduce your taxes.

Although we use investor and trader as we please, in the world of taxes these to words have different meanings and your taxes will be affected according to the meaning you put. Therefore, it is better to understand how the IRS views a trader and an investor so that you can benefit from it.

If you spend you days buying and selling stocks, then you are trader. If you are a trader, you save yourself a lot of money when it comes to paying taxes. As a trader, you can deduct all your investing expenses from your tax returns. These expenses can be newsletter subscription, home office and computer equipment.

Now how can you decide whether you are a trader or an investor? There is no guideline laid out to distinguish between a trader and an investor other than the several court cases. According to these court cases, you are a trader if you spend a lot of time trading and you do not have a regular full time job. But you can also be part time trader but you would have to buy and sell stocks on a daily basis. In addition, you are a trader if you have established a regular and continuous pattern for trades, and you ultimate aim is to profit from short-term market swings rather than keeping stocks for long-term gains.

However, you can be both a trader and investor. But you should separate your long-term investments from your short-term investments so that you are not caught by IRS for cheating.

From the IRS's perspective, a trader is self-employed and you can deduct all your expenses on Schedule C. Write offs in Schedule C reduces your adjusted gross income and you can fully deduct your personal exemptions While an investor has to account for all his expenses on Schedule A, and they can only write off the amount that exceeds 2 percent of the adjusted gross income.

In addition, as a trader you can deduct margin account interest on Schedule C and take an immediate write off of up to $128,000 for 2008 and $125,000 for 2007 for equipment you used in your trading activities for more than fifty percent of the time. Plus, you will not have to pay self-employment tax on your net profit because capital gains are exempt from it.