What is Capital Gains Tax on Real Estate?

Capital gains tax is (the income) tax you pay on gains/profits from selling real estate or other capital assets.

The Internal Revenue Service (IRS) classifies capital gains based on the length of time the taxpayer owned the property.

Per the IRS: “Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold the asset for a year or less, your capital gain or loss is short-term (there are some exceptions). The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year. The term "net long-term capital gain" means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years.”

The IRS treats short-term capital gains as regular income and calculates the taxes due, using the taxpayer’s filing status and adjusted gross income.

How to minimize capital gains taxes

For professional tax information, make sure to talk with a local tax pro. For general informational purposes (deemed reliable but not guaranteed), these are some of the ways you can usually minimize capital gains taxes:

• Own a home and use it as your main residence for at least two years in the five-year period before you sell. For this, you must not have excluded another home from capital gains in the two-year period before the home sale.

• Hold on to the property for at least a year to qualify for the long-term capital gains tax rate.

Here is some detailed information, including a capital gains calculator:

https://www.nerdwallet.com/article/taxes/capital-gains-tax-rates

https://turbotax.intuit.com/tax-tips/investments-and-taxes/5-things-you-should-know-about-capital-gains-tax/L0m06D9lI