If you’re a real estate investor looking at selling a property, or if you’re thinking of buying a property now and thinking long term about selling it, then you might be worried about what taxes you’ll incur. In this blog post you’ll read about investment property taxes capital gains – what Buffalo, NY investors should know about capital gains.
Before you read further, you should be aware that this information is provided in general to a wide range of readers – each person reading in a different area inside or outside of NY, perhaps with different corporate structures, any many other factors. So we’re providing a helpful overview but you should always talk to an accountant and tax attorney before making any final decisions for yourself. Owning investment property in Buffalo, NY can be a profitable venture, but when it comes time to sell, understanding capital gains taxes and other investment property tax implications is crucial. Failing to plan ahead could cost you thousands in taxes, reducing your overall profit. In this guide, we’ll break down what investors in Buffalo, NY need to know about capital gains taxes, deductions, and strategies to minimize their tax burden.
Different Types Of Tax For Different Types Of Income
There are different types of tax for different types of income. For example, straight income that comes in from a job might be taxes as regular income at your regular tax rate. But other types of income may be taxed at a different tax rate. For a stock market investor, for example, income derived from dividends have their own tax rate. And for real estate investors, you should be aware that income derived from capital gains on the sale of a property has its own tax rate.
What Are Investment Property Taxes Capital Gains?
Let’s start back at the basics: When you buy a property, you pay a price; when you sell a property, you get what the next buyer pays you. The difference between the price you bought the property for and what you sold the property for is the capital gain. Let’s say you bought the property for $100,000 and you sold it for $125,000. The capital gain is $25,000 and this is the income that is taxed at the capital gain rate.
Capital gains taxes apply when you sell an investment property for more than you paid for it. The amount you owe depends on:
- How long you owned the property
- Your taxable income
- The difference between the purchase price and selling price
Why Do Capital Gains Have A Different Rate?
Capital gains tax rates are usually less than the rate you pay for your regular income. There are a couple of reasons why capital gains are taxed differently: one of the reasons is because the gain can be quite substantial on a piece of real estate so a normal tax rate can be quite prohibitive to pay, so a capital gains tax rate is like keeping extra money in your pocket. The other reason is because the government wanted to encourage the buying and selling of assets (which is good for the economy) so they provided an incentive (a lower rate) to do so.
Capital Gains On Investment Property Versus Your Primary Residence
You should be aware that capital gains on your residence (the house you live in) may be treated differently than other property you own. Some important factors include: whether you live in the house and for how long, or whether it’s a secondary property (such as a cottage) or an investment property such as a rental property. You should talk to a tax attorney about this because the situation will be different for everyone.
Taxes can take a significant bite out of your investment profits, but with the right strategies, you can reduce your liability and keep more money in your pocket. If you’re thinking about selling your investment property in Buffalo, NY, consult a tax professional or real estate advisor to explore your best options.
Need Help Selling Your Investment Property?
If you’re looking to sell your rental property in Buffalo, NY, we can help you navigate the process while maximizing your profits. Contact us today for a free consultation.