It’s critical to comprehend capital gains taxes on home sales today more than ever because of the nationwide surge in property values. There are numerous tax benefits associated with real estate investing. So, it is critical to understand how the capital gains tax in New York on real estate is currently applied because the laws have evolved over time.
Over two dozen tax deductions are available to you as a landlord while the property is owned as a rental. Then, when the time comes to sell, you have a dozen alternatives to lessen or evade real estate capital gains taxes. The following blog will discuss how to reduce property tax in NY.
Let us first understand the short terms and long-term capital gains.
Capital Gains Tax in New York: Short-Term vs. Long-Term
A short-term capital gain or loss would be treated as ordinary income if the capital asset was acquired less than a year ago. If the purchase was made more than a year ago, it is considered a long-term capital gain and will receive favorable tax treatment.
Short-Term Capital Gains Tax: 2022 Rates
There are not any specific rules for short-term capital gains. Instead, the government includes any profit you make from selling the house under one year in your standard income.
Short-term sales allow you to reduce your tax obligations by meticulously tracking all of your deductions and expenses.
| Tax Rate | Individual | Head of Household | Married Filing Separately | Married Filing Jointly and Surviving Spouses |
| 37% | $539,900 or more | $539,900 or more | $539,900 or more | $647,850 or more |
| 35% | $215,951 – $539,900 | $215,951 – $539,900 | $215,951 – $539,900 | $431,901 – $647,850 |
| 32% | $170,051 – $215,950 | $170,051 – $215,950 | $170,051 – $215,950 | $340,101 – $431,900 |
| 24% | $89,076 – $170,050 | $89,051 – $170,050 | $89,076 – $170,050 | $178,151 – $340,100 |
| 22% | $41,776 – $89,075 | $55,901 – $89,050 | $41,776 – $89,075 | $83,551 – $178,150 |
| 12% | $10,276 – $41,775 | $14,651 – $55,900 | $10,276 – $41,775 | $20,551 – $83,550 |
| 10% | $0 – $10,275 | $0 – $14,650 | $0 – $10,275 | $0 – $20,550 |
Long Term Capital Gains Tax New York: 2022 Rates
There are only three capital gains tax divisions. The tax rates on long-term capital gains in NY are significantly lower than those on short-term.
| Tax Rate | Individual | Head of Household | Married Filing Separately | Married Filing Jointly and Surviving Spouses |
| 20% | $459,750 or more | $488,500 or more | $258,600 or more | $517,200 or more |
| 15% | $41,675 – $459,750 | $55,800 – $488,500 | $41,675 – $258,600 | $41,675 – $459,750 |
| 0% | Up to $41,675 | Up to $55,800 | Up to $41,675 | Up to $41,675 |
What Are the Methods to Minimize Tax on Investment Property Sales?
Saving money is the priority of every investor. Nobody desires to pay more taxes than necessary. However, an investor can gain more benefits from capital gains tax in New York if it follows certain tax-saving strategies.
Here are a few tax strategies to lower your real estate capital gains taxes in New York.
Reside in Your Property for At Least 2 Years
The very first trick you can utilize is section 121 exclusion. Also known as homeowner exemption, it allows you to save capital gains tax on home sales when you sell a property in which you have resided for a minimum of 2 years.
Up to an amount of $500,000, there are no taxes for married homeowners. On the other hand, up to the amount of $250,000, individual homeowners don’t have to pay any taxes.
However, you are eligible for the homeowner exclusion if you stay on a property for any two of the previous five years. The homeowner exemption allows you to move up to every two years while avoiding capital gains taxes. However, you are only permitted to use it once every two years.
Offset Losses by Selling Property
Another way to save taxes on real estate is to counter your taxes with your losses.
In case you are suffering through a financial loss, then you can choose to sell a property to compensate for it and counter the taxes.
For example, if you have a loss of $30,000 and now you want to tackle that loss by selling a property. You sell the property and gain a profit of $50,000. So, when you have to show capital gains taxes on real estate, you can add up your losses and pay only taxes on profits of $20,000.
Document Expenses to Increase Your Cost Basis
The price you paid for a house or other asset, including renovation expenditures, is your cost basis. So, your cost basis might increase with each capital investment you make to the property, lowering your taxable gains. When you’re flipping a house over the course of a few months, you must retain your receipts, invoices, and contracts in order to be eligible for the benefit.
Save with Property Exchange
You are permitted by the IRS to switch or exchange one investment property for another without having to pay capital gains tax on the sale of the first one. It’s also called a 1031 exchange, and it enables you to keep acquiring rental properties of increasing size without having to pay any capital gains taxes along the way.
Capital Gains on a Rental Property
If you don’t benefit much from capital gains tax on a primary residence, you can convert it to a rental property. Maintaining your property as a long-term rental will give you a passive income.
While a buy-and-hold asset, you can continue to depreciate it for accounting needs even as its value increases. Your income tax preparer will run your numbers and will tell you how and when it is beneficial to sell this property.
Frequently Asked Questions
Yes, you have to pay capital gain taxes in New York. However, you are eligible for a capital gains exclusion of $250,000 if you are an individual and $500,000 if you are a married couple.
Depending on the seller’s income and marital status, long-term capital gains are taxed at a rate of 0%, 15%, or 20% at the federal level.
Yes, you can use the 1031 exchange policy. However, it only functions if you sell your investment property and use the money to purchase a different, comparable property. It allows you to avoid capital gains tax in New York.
No matter what your age is, everyone is currently required to pay capital gains taxes on property sales.
I am Billie wilson, a financial analyst who loves to share knowledge. I believe that everyone deserves the opportunity to succeed and so I guide people in their journey to financial growth
