{"id":296771,"date":"2021-07-12T14:54:59","date_gmt":"2021-07-12T11:54:59","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/what-to-know-about-taxes-when-selling-investment-properties\/"},"modified":"2021-07-12T14:54:59","modified_gmt":"2021-07-12T11:54:59","slug":"what-to-know-about-taxes-when-selling-investment-properties","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/what-to-know-about-taxes-when-selling-investment-properties\/","title":{"rendered":"#What to know about taxes when selling investment properties"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a41a298547be\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a41a298547be\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/what-to-know-about-taxes-when-selling-investment-properties\/#1_Think_about_doing_a_1031_exchange\" >1. Think about doing a 1031 exchange<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/what-to-know-about-taxes-when-selling-investment-properties\/#2_Be_prepared_to_calculate_the_taxes_on_your_gain\" >2. Be prepared to calculate the taxes on your gain<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/what-to-know-about-taxes-when-selling-investment-properties\/#3_Passive_losses_will_be_released\" >3. Passive losses will be released<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/buradabiliyorum.com\/en\/what-to-know-about-taxes-when-selling-investment-properties\/#4_Remember_you_also_have_to_pay_your_state_and_local_taxes\" >4. Remember you also have to pay your state and local taxes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/buradabiliyorum.com\/en\/what-to-know-about-taxes-when-selling-investment-properties\/#5_Individually_owned_properties_can_be_subject_to_estate_taxes\" >5. Individually owned properties can be subject to estate taxes<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong>#What to know about taxes when selling investment properties<\/strong>&#8221;<\/p>\n<div>\n<p>If you\u2019re new to real estate investing, it\u2019s likely you\u2019re reading every book and article on the topic \u2014 or you should be! \u2014 in order to prepare yourself for all obstacles. One aspect of real estate investing that many individuals often overlook is tax liabilities when selling their investment properties.\u00a0<\/p>\n<p>In an effort to give you the best advice and information, The Post consulted three different experts (including an experienced accountant) to make sure you\u2019re informed.<\/p>\n<p>As a <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a> rule, Margo McDonnell, president at 1031 CORP, recommends you always consult your tax advisor prior to selling your investment property, to determine the tax consequences of your sale. \u201cKnowing the state and federal tax liability will allow you to make more informed decisions,\u201d McDonnell said.\u00a0\u201cBe sure to take into account capital gains, depreciation recapture, state income tax and the 3.8% Unearned Investment Income Tax.\u201d<\/p>\n<p>\u201cDon\u2019t forget about taxes! Sounds simple enough, but many real estate investors will not think about potential tax implications when selling, and will find that they may have a tax gain on the property which will significantly reduce their after-tax proceeds,\u201d Edward McWilliams, CPA of nine years and Partner at <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/ceriniandassociates.com\/\">Cerini &amp; Associates, LLP<\/a>, told The Post. \u201cThis can impact the investors\u2019 ability to deploy these gains in other investments or for personal use.\u201d<\/p>\n<p>Ahead find five key points related to real estate tax practices:\u00a0<\/p>\n<h2><span class=\"ez-toc-section\" id=\"1_Think_about_doing_a_1031_exchange\"><\/span>1. <strong>Think about doing a 1031 exchange<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>\u201cConsidering your end goal \u2014 and subsequent strategy \u2014 is crucial in all decisions investment-related, especially as you prepare to sell one or more of your assets,\u201d Bob Pinnegar, President &amp; CEO of the National Apartment Association, said. \u201cWhen preparing to sell, first consider the type of sale. For instance, are you seeking to cash out or are you looking to exchange your asset for a larger property? This decision drives the sale process, particularly when it comes to <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>licable taxes.\u201d<\/p>\n<p>\u201cIf your end goal is to exchange the property for another, 1031 like-kind exchanges might make the transition easier, help you manage risk and ultimately defer capital gains taxes,\u201d said Pinnegar.\u00a0<\/p>\n<p>While a 1031 exchange is a powerful tax strategy, it is not always the right one for every situation so make sure you consult your tax advisor to determine if a 1031 exchange is right for you.<\/p>\n<p>\u201cCurrently, the Internal Revenue Code allows for taxpayers to do a 1031 or like-kind exchange with real estate. A 1031 exchange allows the taxpayer to defer any tax implications on the sale of the property so long as they invest the proceeds in a new property (\u201clike-kind\u201d),\u201d McWilliams said.\u00a0<\/p>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" width=\"1024\" height=\"682\" alt=\"What to know about taxes when selling investment properties&#10;\" class=\"wp-image-18760207 lazyload\" srcset=\"https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset2.jpg?quality=90&amp;strip=all&amp;w=300 300w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset2.jpg?quality=90&amp;strip=all&amp;w=640 640w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset2.jpg?quality=90&amp;strip=all&amp;w=1280 1280w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset2.jpg?quality=90&amp;strip=all&amp;w=1024 1024w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset2.jpg?quality=90&amp;strip=all&amp;w=2000 2000w\" data-sizes=\"(max-width: 640px) 100vw, 1024px\"\/><figcaption><span class=\"credit\">Bloomberg via Getty Images<\/span><\/figcaption><\/figure>\n<p>\u201cIn order to qualify, taxpayers will need to follow specific steps, guidelines and timelines, including the use of a Qualified Inter<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">media<\/a>ry and generally completing the transaction within 180 days,\u201d McWilliams added. \u201cInvestors should note this treatment is not automatic and if these steps are not followed correctly the entire gain will be taxable, even if they invest in a new property with the proceeds. A 1031 exchange also will incur additional fees for legal, accounting and intermediary services and can add complexity to deals, so it may not be worth it for smaller gains.\u201d<\/p>\n<h2><span class=\"ez-toc-section\" id=\"2_Be_prepared_to_calculate_the_taxes_on_your_gain\"><\/span>2. <strong>Be prepared to calculate the taxes on your gain<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>On the other hand, Pinnegar said to keep in mind applicable capital gains taxes if you\u2019re seeking to cash out right away. \u201cAs you prepare to pay them, take time to look back on investments you\u2019ve made on the asset as well as depreciation,\u201d he said. \u201cConsider consulting a CPA to best understand how capital gains taxes will impact you.\u201d<\/p>\n<p>\u201cBe prepared for depreciation recapture. Rental properties are generally eligible for an annual expense allowance for depreciation depending on the use of the property and its cost. When these properties are sold, any depreciation allowed will be \u2018recapture,\u2019\u201d said McWilliams. \u201cThe gain on the sale is generally calculated as the selling price less your purchase price and any improvements, but depreciation will reduce your carrying value (basis) in the purchase price. The gain picked up here will normally be known as \u2018Unrecaptured Section 1250 Gain\u2019 and will be taxed at a special 25% federal tax rate.\u201d\u00a0<\/p>\n<h2><span class=\"ez-toc-section\" id=\"3_Passive_losses_will_be_released\"><\/span>3. <strong>Passive losses will be released<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>\u201cFor most taxpayers, losses incurred in a rental activity are considered passive and therefore unable to offset other types of income, such as wages or business income. As such, real estate investors may have \u2018suspended losses\u2019 \u2013 prior rental losses they were unable to offset against other income,\u201d McWilliams explained.\u00a0<\/p>\n<p>\u201cWhen the property is finally sold in a 100% taxable sale, these losses are now released and are treated as nonpassive losses in the year of the sale. This may offset gains on the sale or present an opportunity for taxpayers to engage in other forms of tax planning, such as a Roth IRA conversion, in a more efficient manner.\u201d<\/p>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" width=\"1024\" height=\"682\" alt=\"What to know about taxes when selling investment properties&#10;\" class=\"wp-image-18760213 lazyload\" srcset=\"https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset3.jpg?quality=90&amp;strip=all&amp;w=300 300w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset3.jpg?quality=90&amp;strip=all&amp;w=640 640w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset3.jpg?quality=90&amp;strip=all&amp;w=1280 1280w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset3.jpg?quality=90&amp;strip=all&amp;w=1024 1024w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset3.jpg?quality=90&amp;strip=all&amp;w=2000 2000w\" data-sizes=\"(max-width: 640px) 100vw, 1024px\"\/><figcaption><span class=\"credit\">Getty Images<\/span><\/figcaption><\/figure>\n<h2><span class=\"ez-toc-section\" id=\"4_Remember_you_also_have_to_pay_your_state_and_local_taxes\"><\/span>4. <strong>Remember you also have to pay your state and local taxes<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>McWilliams also flagged that many taxpayers only think about federal income tax rates and treatment \u2014capital gain versus ordinary or recapture rates \u2014 but \u201cit\u2019s important to consider that both the state the property is located in and the owner\u2019s state of residence may impose tax on the sale as well.\u201d<\/p>\n<p>\u201cSome states also may impose withholding at the source based on the gross amount of the sale; for instance, Vermont requires nonresident withholding based on the gross sales price of the property,\u201d McWilliams said.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"5_Individually_owned_properties_can_be_subject_to_estate_taxes\"><\/span>5. <strong>Individually owned properties can be subject to estate taxes<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>\u201cEstate taxes are an important element of your long-term strategy to consider. Overall, your business structure will dictate if and how estate taxes impact your portfolio,\u201d said Pinnegar.\u00a0<\/p>\n<p>\u201cFor instance, individually owned properties are often subject to estate taxes. Assets owned in an LLC pay taxes differently as they are pass-through entities and are not subject to corporate taxes like a corporation. Properties held within a trust can be transferred to others without estate taxes, and this route may be beneficial for those particularly concerned about estate planning or considering a group investment.\u201d<\/p>\n<p>Note: each of these structures and points listed in this article is unique and complex, and you should consider consulting with a tax advisor or CPA that can best identify the implications of applicable taxes on your portfolio.\u00a0<\/p>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" width=\"1024\" height=\"682\" alt=\"What to know about taxes when selling investment properties&#10;\" class=\"wp-image-18760214 lazyload\" srcset=\"https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset1.jpg?quality=90&amp;strip=all&amp;w=300 300w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset1.jpg?quality=90&amp;strip=all&amp;w=640 640w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset1.jpg?quality=90&amp;strip=all&amp;w=1280 1280w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset1.jpg?quality=90&amp;strip=all&amp;w=1024 1024w, https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-inset1.jpg?quality=90&amp;strip=all&amp;w=2000 2000w\" data-sizes=\"(max-width: 640px) 100vw, 1024px\"\/><figcaption><span class=\"credit\">dpa\/picture alliance via Getty I<\/span><\/figcaption><\/figure>\n<p>If you\u2019re new to real estate investing and want a little bit more guidance with the process, Roofstock is a great resource for you.\u00a0<\/p>\n<p><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.roofstock.com\/\">Roofstock<\/a> is a company with an online marketplace that promises to make investing in single-family properties radically simple. New investors will appreciate the expansive repository of real estate articles, blogs, podcasts and webinars that is available at no cost through the Roofstock Knowledge Center. <\/p>\n<p>Experienced investors will value the opportunity to buy or sell entire packages of investment properties using <a rel=\"nofollow noopener\" target=\"_blank\" href=\"http:\/\/roofstock.3k3q.net\/x9y2LR\">Roofstock<\/a>\u2019s portfolio services. Investors of all s<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/trip-and-travel\/\" data-internallinksmanager029f6b8e52c=\"10\" title=\"Trip &amp; Travel\" target=\"_blank\" rel=\"noopener\">trip<\/a>es can benefit from the state-of-the-art <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/technology\/\" data-internallinksmanager029f6b8e52c=\"4\" title=\"Technology\" target=\"_blank\" rel=\"noopener\">technology<\/a> that revolutionized the way real estate is bought and sold \u2014 including Roofstock\u2019s proprietary Neighborhood Ratings and Cloudhouse Rental Calculator. <\/p>\n<p>Whether you\u2019re buying or selling real estate investment properties, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"http:\/\/roofstock.3k3q.net\/x9y2LR\">Roofstock<\/a> has the tools and information you need to be a pro.\u00a0\n            <\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/news\/\" target=\"_blank\" rel=\"noopener\">News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/nypost.com\/2021\/07\/12\/what-to-know-about-taxes-when-selling-investment-properties\/\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;#What to know about taxes when selling investment properties&#8221; If you\u2019re new to real estate investing, it\u2019s likely you\u2019re reading every book and article on the topic \u2014 or you should be! \u2014 in order to prepare yourself for all obstacles. One aspect of real estate investing that many individuals often overlook is tax liabilities&#8230;<\/p>\n","protected":false},"author":1,"featured_media":296772,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/nypost.com\/wp-content\/uploads\/sites\/2\/2021\/07\/roofstock-investment-properties-1.jpg?quality=90&strip=all&w=1200","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[111664,71862,72446,70431,71226,72938,70624],"class_list":["post-296771","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-7-12-21","tag-deals","tag-online-shopping","tag-property-taxes","tag-real-estate","tag-sales","tag-shopping"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/296771","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=296771"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/296771\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/296772"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=296771"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=296771"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=296771"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}