Crucial Tax Tips for Landlords, #14

Minimize Taxes Using an Installment Sale

RetirementSelling property usually results in a gain for which you have to pay a capital gains tax.

You can reduce tax liability associated with this capital gain using an installment sale.

An installment sale is a transaction in which at least one payment for the sale of property is received after the tax year of the sale.

Recognizing the gain over time can be more preferable, because if all gain is recognized in a single year, the seller usually has a very heavy tax burden.

Waiting to receive the income until future years when taxable liability is lower can be very beneficial.

For example, you sell a property and have a capital gain of $100,000, on which you will owe at least $15,000 in capital gains tax. Since you are retiring soon, instead of collecting all the income now and being taxed on it at a high bracket, you decide to set up an installment sale so you can collect the money when you are at a lower liability and avoid the additional taxes.

Everyones tax situation is different, and this information should not substitute professional advice. Taxpayers should always consult with their tax advisors to consider specific factors that might affect their situation.

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