How to Reduce Capital Gains Tax

Investors and homeowners in Columbus, OH have several legitimate ways to reduce the capital gains tax owed on the sale of real estate, though the available strategies depend on whether the property is a primary residence or an investment property. For a primary residence, the Section 121 exclusion generally shelters up to two hundred fifty thousand dollars of gain for an individual or five hundred thousand dollars for a married couple filing jointly. For investment property, strategies generally include carefully documenting capital improvements to increase the adjusted cost basis, timing the sale to qualify for long term capital gains rates by holding the property for more than one year, and offsetting gains with capital losses from other investments through a strategy generally known as tax loss harvesting.

For investment property specifically, the most substantial deferral tool available under current law is a like kind exchange under Section 1031, which allows an investor to defer both capital gains tax and depreciation recapture by reinvesting the net proceeds into replacement real property. This is a deferral strategy rather than a permanent reduction, since the deferred gain generally carries over into the replacement property's basis and would be recognized upon a future taxable sale, unless the investor continues to exchange or the property passes to heirs who receive a stepped up basis. Columbus, OH investors evaluating a sale generally benefit from comparing the after tax proceeds of a straightforward sale against the deferred outcome of a properly structured exchange before making a final decision, since the difference in near term cash available can be substantial depending on the depreciation claimed and the holding period.