Want to invest in real estate ? Well, one of the first things you should understand before making such investment is capital gains. Capital gains are essentially defined as the profit you make from the sale of your real estate. There are several factors that will help determine the tax liability on such gains, which are as follows:
- Long Term vs. Short Term: One of the first factors that affect the tax liability on capital gains is whether the gains are short term or long term. Short term capital gains refer to the gain obtained from the sale of real estate within a year of its purchase. Long term refers to the sale of property that has been held onto for at least one year, if not more. This is important because there are different tax rates for both types, with short term gains being taxed at a much higher rate and the long term gains experiencing almost nil taxation in certain cases.
- Other Factors: Similarly, there are other factors that you should consider when estimating your capital gains tax. These include your income, especially from other sources, as well as the type of asset or property that you hold. It is important to note that the calculations for capital gains will also differ depending on how you have gained the property. In other words, property gained through sale will be treated differently when compared with that gained through inheritance or gift.
- Calculating Capital Gains: Before estimating the final tax liability on your capital gains, it is important to calculate the exact gains that you have from the property. This is done by ascertaining the losses and ensuring that you subtract them from the gains. You should also take into consideration the applicable tax reliefs, if any, which may reduce that gain. This way, you will finally arrive at a figure that is the net capital gains that you have accrued on the property. Tax liability will be calculated on that amount.
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