Here’s how you can avoid California Capital Gains Tax.
You’ll want to avoid California Capital Gains Tax so that you don’t have to pay after selling any asset, such as stocks or bonds. You do not have to pay this tax if you sell your primary residence. In some cases, the CGT is charged even while you are still alive! For example, if someone dies and there is a capital gains on their house which has been in the family for generations. The descendant of the original owner will have to pay taxes on top of inheriting a property they may not want or be able to afford. Clearly, avoiding California Capital Gains Tax can save Californians thousands if not millions of dollars every year.
So how does one avoid Capital Gains Tax in California?
First off, let’s discuss what kinds of things can be taxed. Any time you sell stocks, bonds, securities or other assets in a taxable transaction, it is likely that you will have to pay taxes on any gains made. This does not apply to primary residences however! If you co-own a property with a spouse and one of the owners dies, there may be a CGT but this depends on how the couple acquired the home.
Inheritance can also lead to taxes being imposed upon selling an asset. For example, if someone inherits stock from their Grandmother and then sells it for a sizable return, they could get hit with taxes even though their grandmother had already been taxed when she bought the stocks originally! In order to avoid this, it’s best to talk to a financial advisor. For information on the easiest way to close at 1031 Exchange and make a great return on investment while keeping it highly liquid, talk to our 1031 Exchange Fund Assistant.
In order to get out of paying CA Capital Gains Tax, people should consider some of the following actions if the conditions are met:
1) Consider selling your stocks or other assets as an ‘installment sale’ rather than all at once. This way, you can spread out the taxable event over multiple years and pay them accordingly.
2) Invest in primary residences through deductions and exemptions which postpone taxes on certain events such as home sales and death.
3) If you inherit property and will not live in it for very long or plan to sell it quickly, then you’ll want to talk with a tax specialist about whether or not you might be able to do an installment sale. note that this may affect your eligibility for certain tax credits.
5) Don’t buy a lot of expensive material items. You can reduce tax by not buying or selling pricey assets, because there is no cap on taxable gains in the case of expensive purchases and sales.
6) Don’t put off filing taxes! If you owe $100 in taxes and only pay $50 when you file your return, then you will have to pay interest on top of everything else later. This could add up to hundreds or even thousands in unnecessary penalties and fees. However, if you don’t file at all then that’s just going to be even worse! It’s much better to avoid California Capital Gains Tax than having it come back and bite you in the ass.
If you own investment property, you may be eligible for a 1031 exchange. Nobody wants to pay California Capital Gains Tax. To qualify, your new investment property must be equal or greater value than the one you are selling. Any existing debt on the property being sold will also need to be paid off using the proceeds from the sale. For example, if you own a $100,000 rental house at an assessed market value of $150,000 with a mortgage of $50,000 and want to sell it for cash before buying another property for more money, then you would not be able to use 1031. You could ask your lender to allow you to cash out instead of refinancing that amount into your new purchase however some lenders may not agree.
Once completed your 1031 exchange, if applicable, all depreciation recaptured needs to be included as ordinary income on your tax return.
There are other steps that need to be taken before you can successfully understand how to avoid California Capital Gains Tax, which is why it’s important to contact an accountant or tax professional in order to understand how they work and what all of this entails.
This article provides only general information about how to avoid Capital Gains Tax in California. It is not exhaustive nor should it be considered advice on any particular matter. The author explicitly disclaims liability for damages incurred by relying on these contents or related materials from third parties. Always seek the help of a qualified legal, accounting, real estate professional and/or such related professionals when dealing with specific legal or financial issues.