There are several strategies for deferring the taxes on capital gains, including a 1031 exchange.  When using the 1031 exchange you are not able to trade down in value - you must use your equity to trade up. Many investors will use this strategy to move up to large properties until they have their ideal property for cash flow such as a large apartment complex. There are very stringent timeframe requirements when identifying and closing on other properties in a 1031 exchange, so be sure that the broker you are working with has executed these transactions before. This may sound basic, but if you find that you are educating htem on the process, you should consider another broker. Company training, even from your local banks, will not fill the gaps needed to make this process flow smoothly and do what it should, avoid unnecessary tax penalties.

The rate that you are taxed can depend on many factors including the length of time that you have owned the property (or investment). The longer you have the property the lower the tax rate on the gains. Even with prior experience its important to seek the advice of a professional who deals with capital gains taxes. The last thing you need is an expensive mistake. Or if you prefer, call for a personal referral to a reputable CPA in your area.

By holding a property for over a year, you can sell it and treat the profit as a long term capital gain. This could reduce your tax liability from 33% to 15%.

Primary residences may be exempt from a capital gains tax if it meets certain criteria, You can receive an exemption on capital gains if you have lived in the home as your primary residence for 2 years. You can be exempt for $250,000 if you are single.  With the Taxpayer Relief Act of 1997, married tax payers, who file jointly, get to keep $500,000 in profit on the sale of a home. The law applies to the sale of a personal residence after May 6, 1997, and allows the exclusion to be claimed once every 2 years. The Taxpayer Relief Act of 1997 does not mean to the homeowner that you must have lived in the home for all 720 days out of 1800 days (2 out of 5 years). So long as the home is considered your primary residence, despite brief vacancies due to travel, you may still claim the tax break. If you have to leave for an extended period of time, say 2 years on a relief mission for a non-profit organization, as long as you sell within 5 years and have met the 720 day requirement you are okay. As we have said earlier seek out the advice of a tax professional to verify this information and to make sure you are following the law.

If you have taxable capital gains associated with the sale of your home, you may be able to offset these gains with any capital losses you may have from a sole proprietorship or other flow through business entity, losses in your stock portfolio, etc. Consult your tax advisor for more information.