Avoiding Capital Gains Tax

Both individuals and corporations are subject to capital gains tax. Although the applicable rates may differ, the principle behind it is basically the same. It applies whenever there is a disposal of asset. The amount gained is the difference between the base cost, which comprises of the purchase price and other allowable related expenditures, and the proceeds of the sale. As this form is likely to add to your financial burdens, there are a number of methods to avoid them, especially when it comes to real estate properties. Sometimes it may mean simply deferring your payment. In other cases, it may mean significantly reducing or eliminating overall liability.

One way to reduce or eliminate capital gains tax is by buying real estate that has a greater value than any other property that you sell within the very same year. This way, you can subtract the amount of your purchase from the price of the sale. Thus, you cancel out any gain. In fact, you may also leave yourself with a considerable net loss, which you can carry over to the subsequent year.

Another way to avoid capital gains taxes is to move in to a property for a minimum of one year prior to selling it. By switching to being a resident from being an owner, you will be able to wipe out the tax liability for selling the property.

However, if you cannot avoid any liability entirely, there are also ways to keep it as minimal as possible. Since this kind of burden only applies to income earned during the year, you can finance the sale yourself and then arrange an instalment plan with the buyer that would split your liability into two years. You might also end up with no responsibility at all if you have losses carried over from the previous years.