Avoiding capital gains tax isn't impossible, but it does require some tax know-how. Several tax clauses enable you to avoid capital gains tax, but you should consult a professional for capital gains tax advice as these laws change frequently.
Carry over capital gains losses to avoid capital gains tax.
One of the easiest methods for avoiding capital gains tax is to carry over capital losses. When investment performance is down across the board, it's not uncommon to incur capital losses. You can deduct a maximum of $3,000 in capital losses, or $1,500 for married persons filing separately, but the tax code does permit you to carry over capital losses in excess of $3,000. This means that, if you have a bad year with high capital losses, but the next year includes capital gains, you may be able to carry over enough capital losses to offset the capital gains on which you'd normally have to pay taxes.
Consider a 1031 exchange to avoid capital gains on real estate.
When you take advantage of a 1031 exchange, you can avoid paying capital gains on the sale of an investment property when you immediately exchange it for another investment property. 1031 rules are strict; you have 45 days to designate a new investment property, and 180 days to close on the property.
You cannot replace an investment property with a primary residence under 1031 rules. If you sell an investment property and then buy a new home in which to live, it doesn't qualify as a 1031 exchange. However, if you're planning to maintain an investment property, a 1031 exchange may be able to help you avoid capital gains tax when you sell your investment property.
Take advantage of the capital gain exclusion on personal residence.
If you own and live in your primary residence for more than two years, you can currently take advantage of a $250,000 capital gains tax exclusion when you sell it. This means that any capital gains taxes you would incur for a sale of up to $250,000 on your primary residence is excluded; you don't owe anything on it. If you sell a property for more than $250,000, you must pay capital gains for every dollar over $250,000.
If you are married and filing jointly, you may qualify to exclude $500,000 on the sale of a primary residence. There are exceptions to this rule that may qualify you for the $250,000 capital gains exclusion even if you don't meet the ownership and use tests, so consult a professional if you're not sure if you qualify.
Consult a professional for capital gains tax advice.
Capital gains tax laws change frequently. Additionally, the laws that are currently in place are ripe with exclusions and provisions that change the way the laws work. If you're in doubt about your capital gains liability, consult a professional for capital gains tax advice. A professional can advise you how to best manage your assets and investments to minimize your capital gains tax liability.
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