Short-term CapitalGgains

Short-term capital gains occur when a property is purchased and sold within the same year. A real estate developer who purchases a fixer-up, remodels it and sells it within a year for a profit is liable for short-term capital gain tax. For income tax purposes, short-term capital gains become part of ordinary income subject to tax rates up to 35%.

Long-term capital gains

Profits from any real estate sold after being held for longer than one year are subject to long-term capital gains tax. Starting in 2008, long-term capital gains taxes are exempt for people earning adjusted gross incomes in the 10% to 15% tax brackets. Higher adjusted gross income earners must pay 15% to the federal government on their income tax return.

Deferred CapitalGgains

If a like-kind property is sold and another is purchased, it may qualify for a real estate tax gain deferment through a process called 1031 Exchange. Equity in the new property must be equal to or greater than the property sold. For more information on how to perform a tax-deferred real estate sale, consult a qualified 1031 exchange facilitator.

Homeowner Exclusion

Homeowners selling their primary residence qualify for a real estate tax gain exclusion of up to $250,000 in profit for an individual and up to $500,000 in profit for a married couple filing jointly.

Charity Donation

Property donated to a charitable organization qualifies for a real estate tax gain exclusion and a tax deduction equal to the fair market value of the property at the time of the donation.