Changes in Tax Law that May Affect Property Owners

Changes in Tax Law that May Affect Property Owners

Here’s how capital gains tax law may change in the coming months.

Today I’m going to share some changes that may be coming to the capital gains tax rates. If you own property, especially investment property, these changes may affect you.

First, some background information on the current tax rates for your primary residence. If you were to sell that primary residence, you would be able to make $250,000 in profit tax-free, which doubles to $500,000 if you’re married. That’s great news, especially in a rapidly appreciating market. That means if you and your spouse bought your home for $500,000 and then sold it for $1 million, then you get that gain completely tax-free.

Another thing that currently exists is a step up in tax basis. If you or your partner were to pass away, then the new basis for the surviving spouse would be the basis at the time of the passing. That’s great news for those who have lived in their homes for more than 30 years.

“If you’re considering a 1031 exchange, you may want to do it before tax law changes.”

We often see capital gains tax issues in real estate when it comes to investment properties. If you purchase an investment property and then just sell it, you’ll pay a capital gains tax on any gain you make on that property.  Your other option is to roll that money from one investment property to another using a 1031 exchange. That can be a great way to defer any capital gains until you ultimately sell that property at the end of the chain.

Now, the Biden administration has rolled out some tax plan changes that are important for you to understand. The good news is that no changes are being proposed for primary residences, so you’ll still get $250,000 or $500,000 tax-free. 

However, they are discussing removing the step-up in basis. That could make a huge difference for those who are transferring property intergenerationally or within a married couple.

Further, 1031 exchanges are also on the chopping block. If you have an investment property that has had a significant increase in value and you’re thinking of rolling that money into another property, you may want to explore that option before the tax law changes. If they do end up capping it at $500,000, you wouldn’t be able to take advantage of its gains past that value.

If you have any questions about these changes or how they may affect you, please feel free to reach out to me. I’d love to speak with you.

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