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Do you own an investment home?  Have plans to purchase a rental property?

We find that rental homes are acquired through investor purchases, inherited, or as an end result of personal life changes.  Rental homes can be a great asset if properly managed and regularly evaluated, which we can facilitate!

When selecting a Realtor to help purchase or sell an investment property, plan your next investment strategy, or determine if your residential asset is still properly performing, you want a Realtor who can provide you with sound financial advice.  We can provide you with an investment strategy, give you an understanding of the tax benefits and consequences, 1031 exchanges, and provide a team of experts along the way.

What is a 1031 Exchange?

Internal Revenue Code Section 1031 allows investors to defer the payment of capital gains taxes when selling an investment property and exchanging it into another investment property.  1031 is one of the best strategies an investor can utilize to build up wealth in real estate.

What are Capital Gains?

Capital gains are a tax that is paid on any profits from a second home, investment property or primary residence if less than two years of ownership.  Taxes are determined based on short-term (ownership for less than one year) and long-term (ownership for more than one year).  Capital gains are collected by both the Federal IRS and the State of California.  Capital gains can occur on a primary residence with ownership greater than two years if the profits are greater than $250,000, or up to $500,000 if you file a joint return.

How do you calculate Capital Gains?

To calculate possible capital gains, we recommend reviewing the CA 593, Real Estate Withholding Statement, link provided below.  You will find the calculations to determine your profits on Part VI on page two of the 593 forms.  The Federal IRS calculations may slightly vary and your CPA can validate the exact tax obligation, if applicable.

We always encourage our clients to have a conversation with their CPA to verify potential tax obligations or seek advice from an Estate Planning Attorney with more complex real estate scenarios.

Helpful Links:

CA 593, Real Estate Withholding Statement (document link under “Related Content”): https://www.ftb.ca.gov/forms/2020/2020-593-instructions.html

IRS Capital Gains Link: https://www.irs.gov/taxtopics/tc409