Short Term Vs. Long Term Capital Gains.
Hello everyone,
I am about to sell my first investment property for a good profit but have a few questions that I'm hoping you may be able to help me with...
1) How long must I hold a property (in Pennsylvania) in order to avoid short term capital gains taxes? Is it one year or two?
2) When I sell the property - which was strictly an investment can I apply a 1031 exchange if buying again in the near future?
Thank you inadvance.
Scott Kotran.
Quote:1) How long must I hold a property (in Pennsylvania) in order to avoid short term capital gains taxes? Is it one year or two?Federal income tax rules are the same for all 50 states. For your federal income taxes, the long term capital gains tax rate applies to investment property held longer than one year; while, the short term capital gain rate applies when the holding period is shorter.
Quote:2) When I sell the property - which was strictly an investment can I apply a 1031 exchange if buying again in the near future?Yes, investment property can participate in a 1031 exchange. The time to set up a 1031 exchange is before you sell the property. After the sale will be too late.
NewKid...
Very good information (especially related to the 1031). Thank you - I'll talk to my accountant. One more question, is there a time limit on a 1031 after the sale?
Thanks again,
Scott K.
Scott,
Yes, there is a 180-day timeline with a couple of important checkpoints. Beginning from the settlement date on your relinquished property:You have 45 calendar days to identify your replacement property. Up to three replacement properties can be identified, and your list can be updated as often as you wish within the 45 day identification period.
You have another 135 days to complete the acquisition of one or more replacement properties you had previously identified.If you fail to identify your replacement property in the first 45 days, the exchange fails and the sale of your relinquished property becomes a taxable event. If you fail to purchase one of your identified properties within the full 180 days, the exchange fails and the sale of your relinquished property becomes a taxable event. If you take possession of the sale proceeds from your relinquished property, the exchange fails and the sale is a taxable event.
There are a few more requirements governing a properly structured exchange, but this gives you the highlights.