Deferring Capital Gains on Real Estate

Definition of Capital Gain

The amount by which an asset's selling price exceeds its initial purchase price. In other words the profit made on a particular asset or real estate property for our purposes.

The US government wants you to build your wealth, but not without giving them their share. Unlike assets in the Stock Market, Real Estate is among the special asset classes for which the government allows tax deferral when the asset is sold. In fact you are allowed to reuse that same tax debt to continue building your wealth base. This is done through the use of a Tax Deferred Exchange or a §1031 Exchange. The exchange allows you to trade up in property, taking on more debt if you wish. The like kind exchange means that any type of real estate is like kind with any other type as long as the replacement property is not your primary residence or a vacation home. The rules are fairly simple and listed in great detail under the section §1031 Tax Deferred Exchanges.

How much is the Capital Gains Tax?

There is a common misconception that Capital Gains Tax is only the 15% federal tax. The taxable event triggered from the sale of investment property consists of:

• 15% of Capital Gain - Federal Rate
• 9.3% of Capital Gain - State Rate (California listed)
• 25% Depreciation Recapture (Total Depreciation Expense taken over term of owning property)

In general the seller of an investment property will pay between 25 and 35% of the profit made back to Uncle Sam.

How can AMBAR help?

This is AMBAR's expertise. We have done over 100 exchanges and know how to make this complicated transaction extremely easy for you. We have a wealth of knowledge in this area and can answer all of your questions about the nature of exchanges or Tenant-In-Common properties.

AMBAR Financial Group does not offer legal or tax advice. AMBAR encourages clients and visitors to seek independent legal and tax advice from competent professionals to discuss their personal financial situations. Registered Representatives may only transact business in states where they are registered, or exempt from registration. Currently we have Representatives registered in: AL, AZ, CA, FL, MN, MO, PA, TX. If your resident state is not listed, please contact us at 408-379-6510. Under normal circumstances, securities licensing procedures for additional states may take 24-72 hours. We will not effect or attempt to effect securities transactions, or provide personalized investment advice to, or communicate directly with residents in a state in which a Representative is not registered.

Property photos shown here are being provided for educational purposes only, to illustrate the different property types available in the real estate market. These photos are not intended to represent any particular type of TIC offering nor are they intended to represent any current or future TIC offerings.