If you’re a real estate investor considering selling a property or planning to buy one with the intention of selling it in the future, you might be concerned about the taxes you’ll face. This blog post will cover what Dallas-Fort Worth investors need to know about capital gains taxes on investment properties.

Before diving in, it’s important to note that this information is general and intended for a broad audience, each potentially in different areas inside or outside of Texas, with varying corporate structures and other factors. Therefore, while this overview is helpful, it’s crucial to consult with an accountant and tax attorney before making any final decisions.

Different Types of Tax for Different Types of Income

Different types of income are taxed differently. For example, straight income from a job is taxed at your regular income tax rate, but other types of income might have their own tax rates. For instance, stock market investors pay a specific tax rate on dividends, and real estate investors should be aware that capital gains on property sales are taxed at a different rate.

Different Types of Tax for Different Types of Income

Different types of income are taxed differently. For example, straight income from a job is taxed at your regular income tax rate, but other types of income might have their own tax rates. For instance, stock market investors pay a specific tax rate on dividends, and real estate investors should be aware that capital gains on property sales are taxed at a different rate.

What Are Capital Gains Taxes on Investment Properties?

To start with the basics: When you buy a property, you pay a certain price; when you sell it, you receive the amount the buyer pays. The difference between the purchase price and the sale price is your capital gain. For example, if you bought a property for $100,000 and sold it for $125,000, the capital gain is $25,000, and this gain is subject to capital gains tax.

Why Are Capital Gains Taxed Differently?

Capital gains tax rates are typically lower than those for regular income. There are a couple of reasons for this: One is that the gains on real estate can be substantial, and taxing them at regular income tax rates could be prohibitive, so a lower rate allows you to keep more money in your pocket. Another reason is that the government wants to encourage the buying and selling of assets, which is good for the economy, so they offer a lower tax rate as an incentive.

Capital Gains on Investment Property Versus Your Primary Residence

It’s important to note that capital gains on your primary residence (the home you live in) may be treated differently than on other properties you own. Factors like whether you live in the house and for how long, or whether it’s a secondary property (such as a vacation home) or an investment property (like a rental), can all affect how the gains are taxed. It’s advisable to speak with a tax attorney, as each situation is unique.

If you’d like to learn more about real estate investment properties or need a referral to a knowledgeable tax attorney who can help optimize your tax situation, click here to enter your information, or call TX Home Buying Pros at (214) 296-2343.