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For Estate Planning, Estate Administration And Disputes

Smart strategies to minimize capital gains on real estate

On Behalf of | Jun 15, 2023 | Commercial Real Estate |

Capital gains taxes can significantly impact your profits when selling real estate in New York. However, by employing savvy strategies and taking advantage of existing regulations, you can minimize your tax liability and retain a larger portion of your hard-earned gains.

Utilize the primary residence exclusion

You may qualify for the Primary Residence Exclusion if you’ve lived in your property for at least two of the last five years. This exclusion allows you to exclude up to $250,000 (or $500,000 for married couples) of capital gains from selling your primary home if you meet certain criteria.

Consider a 1031 exchange

A 1031 exchange enables you to defer capital gains taxes. You can reinvest the proceeds from the sale of one property into the purchase of another similar property. You can defer taxes on your gains by satisfying specific IRS rules and timelines. Doing so can also potentially grow your real estate portfolio.

Utilize capital improvements

You may also subtract capital improvements to your property from your capital gains to reduce your tax burden. Make sure to keep detailed records of all improvements you’ve implemented. You may include expenses for renovations, additions or upgrades.

Explore opportunity zones

Investing in designated Opportunity Zones can offer substantial tax benefits. These economically distressed areas provide tax incentives. It may include potential deferral, reduction or even elimination of capital gains taxes.

Timing and planning

Strategic timing of the sale can influence your capital gains tax liability. If feasible, consider delaying the sale to take advantage of lower long-term capital gains tax rates. Also, you may consider consulting with a tax adviser. They can create a comprehensive tax strategy that aligns with your financial goals. They can also help optimize your real estate investments.

Capital gains taxes on real estate transactions in New York can be substantial. Employing smart strategies can help you minimize your tax liability and maximize your profits.