Get top local stories in Southern California delivered to you every morning. > Sign up for NBC LA's News Headlines newsletter. Starting in 2025, single filers qualify for the 0% long-term capital gains rate with taxable income of $48,350 or less, while married couples filing jointly are eligible with $96,700 or less.
A stepped-up basis is a tax provision that allows heirs to reduce their capital gains taxes. When someone inherits property and investments, the IRS resets the market value of these assets to their value on the date of the original owner's death.
To avoid paying capital gains taxes (and depreciation recapture), you can reinvest in a "like-kind" asset with a sales price of at least $500,000. The IRS allows virtually any commercial real estate property to qualify as 'like-kind” as long as you hold it for investment purposes.
An easy and impactful way to reduce your capital gains taxes is to use tax-advantaged accounts. Retirement accounts such as 401(k) plans, and individual retirement accounts offer tax-deferred investment. You don't pay income or capital gains taxes on assets while they remain in the account.
Current tax law does not allow you to take a capital gains tax break based on your age. In the past, the IRS granted people over the age of 55 a tax exemption for home sales, though this exclusion was eliminated in 1997 in favor of the expanded exemption for all homeowners.
“It is a simple fact that billionaires in America can live very extraordinarily well completely tax-free off their wealth,” law professor Edward J. McCaffery writes. They can do so by borrowing large sums against their unrealized capital gains, without generating taxable income.
A few options to legally avoid paying capital gains tax on investment property include buying your property with a retirement account, converting the property from an investment property to a primary residence, utilizing tax harvesting, and using Section 1031 of the IRS code for deferring taxes.
But when gains are inherited, the loophole zeroes out the gain for tax purposes. As a result, an investment sale that would create a taxable gain for the original owner is tax-free for the inheritor. Example: an investor buys 100 shares of stock for $200. Ten years later, the stock is worth $500.
If it's your primary residence
You can sell your primary residence and avoid paying capital gains taxes on the first $250,000 of your profits if your tax-filing status is single, and up to $500,000 if married and filing jointly. The exemption is only available once every two years.
For the 2024 tax-filing season, the 0% rate on long-term capital gains – any asset held for longer than a year – can be applied to taxable income of $44,625 or less for single filers and $89,250 or less for married couples filing jointly.
Social Security and capital gains
Keep in mind that up to 85% of Social Security benefits can be subject to tax depending on your overall income, including capital gains. The calculation that determines how much of your Social Security benefits are taxable includes realized gains.
Capital gains up to Rs 1.25 lakh per year (equity) are exempted from capital gains tax. Long-term capital gain tax rate on equity investments/shares will continue to be charged at 12.5% on the gains. On the other hand, short-term capital gains tax on shares or equity investments will be charged at 15%.
For married couples filing jointly, the standard deduction increases to $30,000, up $800 from tax year 2024. For heads of households, the standard deduction is $21,900 for tax year 2024 and $22,500 for tax year 2025. If your income is below these levels, you won't have to pay any income tax.
A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows you to defer paying capital gains taxes by reinvesting the proceeds from the sale of your investment property into a similar property.
Five-Year Holding Period: To qualify for the primary residence exclusion of up to $250,000 (or $500,000 for married couples filing jointly) of capital gains tax when selling your primary residence, you must have owned and used the property as your primary residence for at least five years during the eight-year period ...
The tax doesn't apply to unsold investments or unrealized capital gains. Stock shares will not incur taxes until they are sold, no matter how long the shares are held or how much they increase in value.
Stepped-up basis is a loophole exempting certain capital gains from the federal income tax. Wealthy investors are incentivized to hold assets until their deaths, even when switching to other investments might prove more productive. Capital gains are the increase in value of an asset that a person holds.
Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they move out of their PPOR and then rent it out. There are some qualifying conditions for leaving your principal place of residence.
Seniors must pay capital gains taxes at the same rates as everyone else—no special age-based exemption exists.
Taxes aren't determined by age, so you will never age out of paying taxes. People who are 65 or older at the end of 2024 have to file a return for tax year 2024 (which is due in 2025) if their gross income is $16,550 or higher.
The IRS considers retirement accounts assets, but the most common types of retirement accounts don't incur capital gains taxes. Withdrawals from IRA and 401(k) accounts get taxed at your ordinary income tax level, not as capital gains.
To qualify for the principal residence exclusion, you must have owned and lived in the property as your primary residence for two out of the five years immediately preceding the sale. Some exceptions apply for those who become disabled, die, or must relocate for reasons of health or work, among other situations.