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Top Guidelines on Deferring Capital Gains Tax

A capital gain is a term used in taxation to refer to profit from the sale of a non-inventory item. On the other hand, if the sale proceeds are lower than the asset’s purchase price, a capital loss results. It is mandatory to report capital gain to taxation authorities. At times, capital gains taxes amount to large amounts, but you can defer or avoid them, which will limit your liability. The following guidelines will help you defer capital gains on the sale of your non-inventory assets.

Ensure you own the asset for at least one calendar year before selling it. A saving in capital gains tax will result because the tax rates that may be applied during its sale will usually be lower than they are today. Waiting to sell after a year will result in savings as high as 20 percent.

If you sell investment or rental property; there is a legal loophole in place that allows you to defer capital gains taxes without worries. It applies when the proceeds from the sale of the said property are channeled back to the same type of investment within a specified period, which is usually 180 days. This exchange is usually complex, making it necessary to hire a taxation expert for the paperwork. Its main advantage is that it is always successful.

Channel the funds into a reputable retirement fund because such accounts are mostly tax-deferred or tax-exempt. Such a step will defer the payment of tax to a period when lower rates will be in operation. However, if the proceeds are substantial, it is advisable to use this trick in combination with another one because there are limits in place to govern the amounts that can be added to these accounts.

You can hand over a valuable asset to a charitable trust to sell on your behalf, deferring or avoiding the payment of capital gains tax. Legally, charitable trusts do not pay taxes, and that means that you will too not be liable to capital gains tax if they sell it on your behalf. For a specified number of years that will follow, you will receive a percentage of the total asset’s cost. If there is anything left over, it is donated to charity.

For someone with a dream of educating your child or grandchild, you can do so and still avoid paying capital gains tax at the same time. By depositing the proceeds of an asset sale to a college savings account, no capital gains tax liability will arise. You can also get similar effects if you have a health savings account that you will deposit the funds to. This account is primarily meant to cater for medical costs that may arise in the future and are tax-exempt. For you to benefit from this exemption, the funds withdrawn must not be used for other purposes other than medical.