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Tips for Deferring Capital Gains Tax

If you sell a-non inventory asset such as land, building, and stocks and the amount you receive is higher than what you paid for it, this is called a capital gain in taxation terms. If, however, you receive less than you paid for the asset, you will end up with a capital loss. Taxation authorities require you to report gains on the disposal of assets. At times, capital gains taxes amount to large amounts, but you can defer or avoid them, which will limit your liability. Let’s explore some of the useful strategies you can make use of to defer them.

Make certain town an asset for a minimum of a calendar year before thinking of its disposal. The purpose of this step is to pay capital gains taxes at reduced rates because the income tax bracket that will be used during the calculations will be much lower. Depending on your current tax rates, savings of up to 20 percent are possible.

A person who sells investment or rental property can defer capital gains taxes by using a legal loophole in the tax laws. You can use it if, within 180 days of the sale of the mentioned property types, you channel the funds received into a similar investment. The complexities involved in this type of an exchange are best handled by a taxation expert, so hire one before proceeding. Its main advantage is that it is always successful.

Channel the funds into a reputable retirement fund because such accounts are mostly tax-deferred or tax-exempt. The trick here is to defer the payment of tax to a later date when a lower tax bracket will be in use. It is advisable to use this method in conjunction with another one if the proceeds are considerable because you could be prevented from depositing everything into this type of account by certain limiting rules.

It is possible to defer or avoid the payment of capital gains tax on a highly-valuable asset by handing it over to a charitable trust so that this party can dispose of it for you. Legally, charitable trusts do not pay taxes, and that means that you will too not be liable to capital gains tax if they sell it on your behalf. For a specified number of years that will follow, you will receive a percentage of the total asset’s cost. All amounts that remain are utilized for charity purposes.

If you have ambitions of educating your kids or grandchildren, it is possible to turn those dreams into ways of deferring your capital gains liability. Just deposit the funds into a college savings account and you are set. You can also get similar effects if you have a health savings account that you will deposit the funds to. This account is primarily meant to cater for medical costs that may arise in the future and are tax-exempt. For you to benefit from this exemption, the funds withdrawn must not be used for other purposes other than medical.