MARTIN LANDIS

Managing Member (CEO) of Landwin, LLC

When it comes time to sell a commercial property, there are many different pieces that need to be taken into consideration. The entire selling process can long, so it is always beneficial to do the proper research ahead of time. One of the items that you should be aware of and gather knowledge on is capital gains. Knowing about capital gains and what they mean to the selling of a commercial property will help you to make the most out of your sale. In addition to the information about capital gains in general, you will want to know what to do in order to get the most out of them.

What are Capital Gains?

The term capital gains refer to an increase in value from the time the commercial property was initially purchased to the time when it is being sold again. This gain in value, though, is not assessed until after the purchase has gone through. Another component of capital gains is that it is a value that is taxed.

Capital gains can be classified as realized or unrealized. Realized capital gains are the capital gains that occur when the commercial property is sold. Unrealized capital gains are the increase in value that is documentable, but not enough for it to be taxable. The capital gains are tracked by being reported each year when you file for your federal income tax.

Lengthen the Amount of Time Owned

The first tip relates to the length of time that the commercial property is owned before being sold. When the commercial property is in your hands for a longer period of time the, gain turns into a long-term capital gain. A commercial property that is in your ownership for less than a year will get taxed as a short-term capital gain. When the commercial property is a long-term capital gain there will be fewer taxes at the time of sale in comparison to the short-term capital gain tax.

The difference in the amount of taxes between long-term capital gains and short-term capital gains could be anywhere from 10 to 20 percent. The amount taxed for a long-term capital gain will, in turn, help you to stay in a lower tax bracket. The bottom line is, the longer you hold on to your commercial property before selling, the higher capital gains you will have because the fewer taxes you will have to pay on that capital gain.

Selling When Your Income is Low

As previously stated, the amount of capital gains that you get to keep depends on how much taxes you have to pay on them. The tax percentage on the long-term capital gains is determined by the marginal tax rate category that you fall into. The breakdown is as follows:

  • Capital gains tax is 0% when the marginal tax rate is 10 or 15 percent
  • Capital gains tax is 15% when the marginal tax rate is 25%, 28%, 33%, or 35%
  • Capital gains tax is 20% when the marginal tax rate is 39.6 percent

The marginal tax rate is, in turn, determined by the amount of income that you make each year. During any time when you are experiencing a lower income than what you are used to, it would be wise to make a move to sell the commercial property. This will help you to keep more of the capital gain from the sale because you will be paying fewer taxes.

Balance Capital Gains and Capital Losses

Let’s face it, the buying and selling of commercial property Commercial Property Tax can be an up and down battle. In order to keep the highest amount of capital gain from the sale, you want to be able to keep the taxes down. A third tip that can help you to do this is by reporting capital losses that occurred that same year as the selling of your commercial property. The more capital losses that you report, the fewer capital gains taxes you will have to pay.

When doing this, you do also need to keep in mind that you can only report up to $3000 of capital losses, so be careful not to go over that amount in the same year as the selling if the commercial property because then you will not be able to report all of those losses. However, any type of losses that you are able to report will help to keep that capital gains tax down.

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