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Top Guidelines on Deferring Capital Gains Tax

In taxation, a capital gain results when you sell a non-inventory asset at an amount higher than its acquisition cost. If, however, you receive less than you paid for the asset, you will end up with a capital loss. Taxation authorities require you to report gains on the disposal of assets. These taxes are sometimes high, making it necessary to find ways to find ways to keep the amounts minimal or avoid them altogether. The following guidelines will help you defer capital gains on the sale of your non-inventory assets.

Keep an asset in your name for at least one year before transferring it to someone else in a sale transaction. 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. Depending on your current tax rates, savings of up to 20 percent are possible.

A person who sells investment or rental property can defer capital gains taxes by using a legal loophole in the tax laws. You can use it if, within 180 days of the sale of the mentioned property types, you channel the funds received into a similar investment. It is a complex exchange that may require you to find a tax expert to handle. A notable advantage of using this method to defer capital gains tax is that almost everyone who uses it always succeeds.

Since most retirement funds are tax-deferred or tax-exempt, deposit the proceeds of the asset’s sale to such an account. Such a step will ensure that you defer tax to a later period when the applicable rates will be lower. 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.

It is possible to defer or avoid the payment of capital gains tax on a highly-valuable asset by handing it over to a charitable trust so that this party can dispose of it for you. Note that charitable trusts are exempt from taxation, a benefit that you will reap from this kind of a transaction. After the sale and for a particular number of years, the trust will pay a specific proportion of the asset’s cost to you. All amounts that remain are utilized for charity purposes.

If you have ambitions of educating your kids or grandchildren, it is possible to turn those dreams into ways of deferring your capital gains liability. Just deposit the funds into a college savings account and you are set. A health savings account can also aid in your efforts to defer the payment of deferred tax. It is a tax-exempt account that helps in catering for future medical costs. The exception, however, only applies if you withdraw the funds for medical and not other purposes.