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What Charleston Investors Should Know About Investment Property Capital Gains Taxes
If you’re a real estate investor looking at selling property or buying a property now to sell at a later date, then you might be concerned with what taxes you may incur. In this blog post we cover the the things that Charleston investors should know about investment property capital gains taxes.
Before you going any further, be aware that this is general information with the purpose of being broadcasted to a wide range of readers – each person reading in a different area inside or outside of SC, 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.
Different Incomes Are Taxed Differently
There are different types of taxes for different income streams. For example, straight income or W-2 income that comes in from a job might be taxes as regular income at your regular tax rate. But other types of income are generally 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 Capital Gains Taxes?
Let’s start back at the basics: When you buy a property, you pay a specific sales price. On the flip side, when you sell a property, you earn revenue from your buyer. 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.
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.