For investors intent on benefitting from the substantial advantages available through strategic employment of Section 1031 of the Internal Revenue Code, timing is critical. The foundation of the 1031 exchange is the concept that when an investor uses the proceeds of a property sale to purchase another property, the investor is, in effect, continuing the investment. Because the taxpayer is reinvesting all the profits, the IRS doesn't require payment of taxes on cash the taxpayer didn't receive. The investor should be aware that the tax is deferred, not eradicated. That means that if the taxpayer later sells a property without exchanging it for another qualified “like-kind” investment as a replacement, they will owe taxes on the accumulated gains.
For many investors, the attraction of real estate includes the ability to pursue diversification of your portfolio, and seek wealth accumulation, deferral or avoidance of taxes, and cash flow. As you seek to accomplish these goals, you can advance your progress with planning. As with any collection, whether in investments or art, ongoing curation is a best practice. Clearly stating your objectives is an essential step toward achieving them, and the next step is identifying and implementing some key tactical procedures to move in that direction.
We’ve learned a great deal about Qualified Opportunity Zones ever since the initiative was passed as part of the Tax Cuts and Job Act (TCJA) of 2017.
There are several methods a taxpayer can use to avoid or defer paying the capital gains tax on stock appreciation. The simplest is not to sell the stock, although even that is not a sure bet. First, remember that if you hold stock for less than a year and then sell it, the tax calculation will be for ordinary income rather than a capital gain. By keeping the security for one year, you are already enjoying the benefit of savings. Still, if the stock has appreciated considerably, the tax due on the capital gain may be significant as well. If you prefer to defer or avoid the tax on the growth, you may want to consider these options.
If you own an investment that returns 8%, is that good? How do you know? If you’re satisfied with 8%, what are you basing that satisfaction on? Indexing a way to help answer these questions.
Indexing measures the comparative performance of two or more investments. It works by benchmarking an investment to a similar well-known, broadly used investment vehicle. For example, a S&P 500 ETF would be benchmarked to the S&P 500 index. In other words, it tracks the S&P 500 index and is expected to perform similarly to the S&P 500.
Before we jump into a discussion about high cash flow real estate, let’s first define cash flow. Cash flow is consistent payments thrown off of an investment. These payments don’t have to come at regular intervals but should be fairly consistent. Payments can come in the form of rental income, as in direct real estate, or through some type of distribution, as is the case with real estate funds.
In contrast, the appreciation of a property or fund isn’t cash flow. There is no cash received from appreciation until the liquidation event (i.e., sale of the investment). In some cases, cash flow is tied to appreciation, which increases the investment's cash flow. However, appreciation by itself isn’t cash flow.
Countless investors have sought portfolio diversification -- and potential monthly income -- through residential investment properties.
Residential real estate markets are red hot in many parts of the country, and you might be considering selling a residential property to realize additional capital from your asset’s appreciation. Unfortunately, the IRS may take a big bite of your proceeds.
In this article, we’ll examine how much you’ll potentially pay in capital gains tax on the sale of a residential investment property, and if you can avoid paying any taxes at all.
A 1031 exchange is commonly used for real estate investment transactions, but can also be used for buying a business.
Investing in a business can be costly when considering the tax implications. That is why a 1031 exchange is appealing when you want to buy a business with the funds from selling an investment property. In a 1031 exchange, you can defer the payment of capital gains taxes on the sale of a property or business when replacing it with a like-kind investment.
Since the IRS will tax a qualified dividend as a capital gain, while an ordinary dividend is subject to the same tax rate as other regular income, understanding the difference is essential. To be considered a qualified dividend and be eligible for the lower tax rate, a payment must meet the requirements established by the IRS. Because regular income rates top out at 37% and the capital gains percentage reaches a maximum of 20%, the savings may be notable. (Note that there is an additional 3.8% Net Income Investment Tax, which may apply to taxpayers with very high incomes.) The good news for taxpayers is that many dividends meet the qualifications for the lower rate.
Examining the question of when you pay capital gains tax has two components: first, what triggers the requirement to pay the tax, and second, what is the timing of the payment.