Top Guidelines on Deferring Capital Gains Tax
In taxation, a capital gain results when you sell a non-inventory asset at an amount higher than its acquisition cost. If, however, you receive less than you paid for the asset, you will end up with a capital loss. Taxation authorities require you to report gains on the disposal of assets. These taxes are sometimes high, making it necessary to find ways to find ways to keep the amounts minimal or avoid them altogether. The following guidelines will help you defer capital gains on the sale of your non-inventory assets.
Keep an asset in your name for at least one year before transferring it to someone else in a sale transaction. Note that, one year from the date of your intended sale, the tax rates could be lower, and that will translate into savings. Waiting to sell after a year will result in savings as high as 20 percent.
If you sell investment or rental property; there is a legal loophole in place that allows you to defer capital gains taxes without worries. You can use it if, within 180 days of the sale of the mentioned property types, you channel the funds received into a similar investment. It is a complex exchange that may require you to find a tax expert to handle. Its main advantage is that it is always successful.
Deposit the sale proceeds into a tax-deferred or tax-exempt retirement fund. The trick here is to defer the payment of tax to a later date when a lower tax bracket will be in use. However, if the proceeds are substantial, it is advisable to use this trick in combination with another one because there are limits in place to govern the amounts that can be added to these accounts.
You can hand over a valuable asset to a charitable trust to sell on your behalf, deferring or avoiding the payment of capital gains tax. Note that charitable trusts are exempt from taxation, a benefit that you will reap from this kind of a transaction. The trust will then transfer to you a specified portion of the asset’s cost over a certain precise period. If there is anything left over, it is donated to charity.
For someone with a dream of educating your child or grandchild, you can do so and still avoid paying capital gains tax at the same time. You just have to place the funds from the sale into a college savings account. It is also possible to get the same effect with a health savings account. It is a tax-exempt account that helps in catering for future medical costs. However, withdrawals from this account must be for medical purposes only; otherwise, they will be taxed.