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Understanding Capital Gains Tax on a Real Estate Investment Property

OWNING REAL ESTATE produces steady income for investors, but the sale of residential and business properties can generate a large tax bill because of capital gains.

Investors should understand the various factors that can help them mitigate and potentially defer paying capital gains tax from selling real estate properties.

Rental property owners will benefit from lower ordinary income tax rates and other favorable changes to the tax brackets for 2018 through 2025, says Michael Underhill, chief investment officer of Capital Innovations in Pewaukee, Wisconsin.

Changes in tax laws have resulted in more complications, and owners of rental properties should invest more time and resources on tax planning, says Sarah Hallock, a tax senior manager for New York-based tax and accounting firm Eisner Amper.

"Recent legislation has granted some benefits to real estate investors, such as the potential tax savings from the 20% deduction for qualified business income and the immediate write-off for qualified improvements," she says.

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