2021 Capital Gains Tax Information for Apartment Property Investors
- Capital Gains Taxes for Apartment Property Investors
- Capital Gains Tax Rates for Apartment Property Investors
- 2021 Long-Term Capital Gains Tax Rates:
- For Single Filers
- Married, Filing Jointly
- Head of Household
- Married, Filing Separately
- 2021 Short-Term Capital Gains Tax Rates:
- Related Questions
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Capital Gains Taxes for Apartment Property Investors
When it comes to investing in an apartment property, any experienced investor would tell you that having an effective tax strategy is critical to your success. Without any strategy in place, you could see a large portion of your profits consumed by an enormous tax bill. Of all the taxes a multifamily investor is expected to pony-up for as a result of their investment, none is more important than capital gains tax. Capital gains taxes are paid whenever a taxpayer generates a profit from disposing of an asset such as commercial real estate, bonds, or expensive collectibles. Capital gains taxes do not apply to ordinary personal and business income or the sale of an individual’s primary residence.
Capital Gains Tax Rates for Apartment Property Investors
Capital gains taxes come in two different varieties; short-term and long-term. Short-term capital gains taxes apply to property held for less than twelve months, while long-term capital gains taxes apply to property held for more than twelve months. From a tax perspective, it’s generally understood that it is more expensive to “flip” an apartment property and sell it in 12 months or less vs. holding it for a longer period of time. Not unlike income taxes, capital gains tax rates vary depending upon an individual taxpayer’s income during the year in which they sell a property.
2021 Long-Term Capital Gains Tax Rates:
For Single Filers
- 0 to $40,400: 0%
- $40,401 to $445,850: 15%
- $445,851+: 20%
- 0 to $80,800: 0%
- $80,801 to $501,600: 15%
- $501,601+: 20%
- 0 to $54,100: 0%
- $54,101 to $473,750: 15%
- $473,751+: 20%
- 0 to $40,400: 0%
- $40,401 to $250,800: 15%
- $250,801+: 20%
What are the capital gains tax rates for apartment property investors in 2021?
The capital gains tax rates for apartment property investors in 2021 depend on the filing status of the investor. For single filers, the rates are 0% for income up to $40,400, 15% for income between $40,401 and $445,850, and 20% for income over $445,851. For married filers, the rates are 0% for income up to $80,800, 15% for income between $80,801 and $501,600, and 20% for income over $501,601. For head of household filers, the rates are 0% for income up to $54,100, 15% for income between $54,101 and $473,750, and 20% for income over $473,751.
Source: What Apartment Investors Should Know About 2021 Capital Gains Taxes
What deductions can apartment property investors take to reduce their capital gains tax liability in 2021?
Apartment property investors can take advantage of several deductions to reduce their capital gains tax liability in 2021. The most common deductions are 1031 exchanges and Opportunity Zones. 1031 exchanges allow investors to defer capital gains taxes on the sale of an investment property by reinvesting the proceeds into a similar property. Opportunity Zones are a new tax incentive that allows investors to defer and/or reduce their capital gains tax bill by investing in designated low-income communities. Additionally, investors can utilize tax-loss harvesting to offset their capital gains taxes. Tax-loss harvesting involves selling an investment at a loss to offset the capital gains taxes on a separate investment.
Are there any tax credits available to apartment property investors in 2021?
Unfortunately, there are no tax credits available to apartment property investors in 2021. However, there are a few tax deductions that investors can take advantage of. These include deductions for depreciation, mortgage interest, and property taxes. Additionally, investors may be able to take advantage of the Qualified Business Income Deduction, which allows them to deduct up to 20% of their qualified business income. For more information, please see this IRS page.
What strategies can apartment property investors use to minimize their capital gains tax liability in 2021?
Apartment property investors can use a few strategies to minimize their capital gains tax liability in 2021. One strategy is to hold onto the property for more than 12 months, as long-term capital gains taxes are generally lower than short-term capital gains taxes. Another strategy is to take advantage of the capital gains tax exclusion for primary residences. This exclusion allows taxpayers to exclude up to $250,000 of capital gains from the sale of their primary residence ($500,000 for married couples filing jointly). Additionally, investors can take advantage of tax-deferred exchanges to defer capital gains taxes. Tax-deferred exchanges allow investors to defer capital gains taxes on the sale of a property by reinvesting the proceeds into a similar property.
Are there any tax incentives available to apartment property investors in 2021?
Yes, there are tax incentives available to apartment property investors in 2021. The most common tax incentive is the capital gains tax rate, which is lower than the ordinary income tax rate. For single filers, the capital gains tax rate is 0% for income up to $40,400, 15% for income between $40,401 and $445,850, and 20% for income over $445,851. You can find more information about capital gains taxes and other tax incentives for apartment property investors here.
Married, Filing Jointly
Head of Household
Married, Filing Separately
2021 Short-Term Capital Gains Tax Rates:
With the current tax structure, short-term capital gains are taxed as ordinary income. For this calculation, the standard federal tax income brackets are to be used as reference.