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How does the Capital Gains Tax work by Kevin Martini

August 19, 2022 by Kevin Martini

There are four things to you should know and understand about the Capital Gains Tax; what is the Capital Gains Tax, how is the Capital Gains Tax calculated, what is the the tax rate for Capital Gains Tax and the potential way to avoid or defer Capital Gain Tax. 

(IMPORTANT NOTE: This article is provided for information purposes ONLY and does not constitute legal, tax or financial advice. Please consult with a qualified tax advisor for specific advice pertaining to your situation.  For more information on any of these items, please reference IRS PUBLICATION 523 for Primary Residence or IRS PUBLICATION 527 & IRS PUBLICATION 544 for Investment Properties.)

WHAT IS THE CAPITAL GAINS TAX?

The Capital Gains Tax is a tax paid upon selling a capital asset (e.g. stocks, bonds, jewelry, real estate) based on the amount the capital asset appreciated during the period of ownership of the capital asset.  

The Capital Gains Tax is a tax that you pay on the profit from the sale of any capital asset, including real estate.

Raleigh Mortgage Broker Kevin Martini

HOW DO YOU CALCULATE CAPITAL GAIN?

To understand the Capital Gains Tax, one must first understand “basis.” Basis, as it related to real estate, is the cost of buying, building, or improving a property. For illustration, if you paid $500,000 for a property, and spent $100,000 in improvements over time of ownership, your basis would be $600,000. If you sell the property for $1,000,000 and pay $80,000 in closing costs, your profit on the sale of the property would be $320,000. You would then need to pay capital gains taxes on that profit.

WHAT IS THE CAPITAL GAINS TAX RATE?

The long-term Capital Gains tax rate for the 2022 tax year are 0%. 15% or 20% of the profit.  For most tax payers, the Federal Capital Gains Tax rate is currently 15% however it is 0% if you’re in the lowest income tax bracket and 20% if you’re in the highest income tax bracket. 

In the example previously mentioned (i.e. you sold a property for $1,000,000 and your cost basis was $,680,000 and you profited $320,000) you’d need to pay $64,000 in taxes if your Capital Gains Tax rate is 20% or $48,000 if your Capital Gains Tax rate is 15%.  In addition, you may also have to pay a state tax and a 3.8% federal Net Investment Income Tax (NIIT). Again, this article is provided for information purposes ONLY and does not constitute legal, tax or financial advice. Please consult with a qualified tax advisor for specific advice pertaining to your situation.

IS THERE ANY WAY TO AVOID OR DEFER PAYING THE TAX?

Perhaps. If the property is your primary residence, and you’ve lived there for 2 out of the past 5 years, you may be able to exclude some or all of the capital gain from taxes with what is called a Principal Residence Exclusion. With a Principal Residence Exclusion, a certain portion of the capital gain is excluded from tax. In the 2022 tax year, married couples can exclude $500,000 of capital gain from tax. Individuals or married couples filing a separate tax return can exclude $250,000 of gain from tax. 

In the example mentioned previously (i.e. you sold a property for $1,000,000 and your cost basis was $,680,000 and you profited $320,000), the entire $320,000 would be excluded from tax if this was your primary home and if you were married, filing a joint tax return. This means that you could save up to $76,160 by using this exclusion (no capital gains tax and no 3.8% NIIT)! 

If the property is an investment property, you may be able to defer the tax by using a 1031 Exchange. With a 1031 Exchange, A 1031 Exchange you may be able to defer the capital gains tax on the sale of investment property if you roll over all the sales proceeds into a new investment property.

1031 Exchanges are ideal for long-term real estate investors

Raleigh Mortgage Broker Kevin Martini

GET MORTGAGE HELP FROM THE MARTINI MORTGAGE GROUP

If you have additional questions on Capital Gains Tax or anything mortgage, let us connect. Unlike other mortgage companies, the Martini Mortgage Group takes a fiduciary approach. That means that the advice and products we offer exist to serve your interests ahead of ours. Give us a call: (919) 238-4934

Filed Under: 1031 Exchange, CAPITAL GAINS TAX, Home Loans, Kevin Martini, Logan Martini, Mortgage, Principal Residence Exclusion, Raleigh, Real Estate, Rental Property, Tax Benefits Tagged With: Capital Gains Tax, CAPITAL GAINS TAX RATE, HOW DO YOU CALCULATE CAPITAL GAIN, Kevin Martini, Mortgage Tips, Principal Residence Exclusion, Raleigh, Raleigh Mortgage Broker, Real Estate

What is depreciation? 

August 9, 2022 by Kevin Martini

If you are thinking of buying an investment property in Raleigh, North Carolina or anywhere in the U.S for that matter, a powerful word that you need to know is depreciation. In fact, in the real estate investment space, there are 3 thing you need to know about deprecation. 

What is depreciation?

A tax deduction that real estate investors can take for the value of improvements on real estate investment property is called depreciation. According to the IRS Publication 946 (2021),  depreciation “… is an allowance for the wear and tear, deterioration, or obsolescence of the property.” One may not depreciate the value of the land since depreciation is only applicable to the value of the improvements on the land. To deprecate a property, you must own it, it must be used in your business or as an income-producing activity, it must have a useable life and that useable life must be greater than 1-year.

How is depreciation calculated?

For illustration only, if an investment property is worth $500,000, and the land is worth $200,000, you can get a tax deduction for $300,000 when you buy the property. Now you cannot take the $300,000 tax deduction all at once in 1-year however you can spread it out over 27.5-years for residential properties.

How can you benefit from depreciation? 

In the simplest form, deprecation allows you to take a ‘paper-loss’ when you purchase and/or own real estate rental property.  This ‘paper-loss’ shelters part of your rental income from taxes. IMPORTANT: depreciation will eventually need to be paid back when you sell the real estate rental property through ‘depreciation recapture’ (NOTE: there is a way to defer ‘deprecation recapture’ by using a 1031 exchange.  

This article has been written by Certified Mortgage Advisor and Raleigh mortgage broker Kevin Martini for informational purposes only and does not constitute legal, tax or financial advice.  Please consult with a qualified tax advisor for specific advice pertaining to your situation.  For more information on any of these items, please reference IRS Publication 946 and IRS Publication 527.

Contact Kevin Martini

Kevin Martini | NMLS 143962 | Certified Mortgage Advisor and Producing Branch Manager | Martini Mortgage Group at PCL Financial Group (powered by Celebrity Home Loans, LLC NMLS 227765) | 507 N Blount St Raleigh, NC 27604 | (919) 238-4934 | www.MartiniMortgageGroup.com | [email protected] | nmlsconsumeraccess.org |Equal Housing Lender

This article has been written by Certified Mortgage Advisor and Raleigh mortgage broker Kevin Martini for informational purposes only and does not constitute legal, tax or financial advice.  Please consult with a qualified tax advisor for specific advice pertaining to your situation.  For more information on any of these items, please reference IRS Publication 946 and IRS Publication 527.

Filed Under: Deprecation, Raleigh, Real Estate, Rental Property, Tax Benefits Tagged With: Buying a Home in North Carolina, Buying a Home in Raleigh, deprecation, Kevin Martini, Raleigh, Raleigh Mortgage Broker, Real Estate, Rental Property

The MartiniFactor | last week and this week with real estate and mortgage rates | May 6, 2022

May 2, 2022 by Kevin Martini

The MartiniFactor is produced by Raleigh Mortgage Broker Kevin Martini and it provides a glimpse of what happened last week in real estate and in the mortgage arena.  In addition, it shares thoughts on what to keep on the radar for the week ahead in the mortgage markets.

Last week (4/29/2022) & this week (5/6/2022)

LAST WEEK IN THE REAL ESTATE & MORTAGE MARKETS

CoreLogic released their Single-Family Rent Index this week and it showed that rents were up 13.1% Year-over-Year in February. Clearly now it is not the time to rent however it may be the time to explore the opportunity to invest and create a real estate portfolio.

Gross Domestic Product (GDP) illuminated that growth was down 1.4%. This decline is a potential sign of a recession but remember, sometimes you can be in and out of a recession before you even know it since, first quarter GDP will be revised 2-times and the final number is not inked until June 2022. Remember, a recession is two consecutive quarters of a downward shift of economic data hence, we won’t know until Fall of 2022 if a recession is happening or ha happened.

The Federal Reserves favorite measure of inflation is the Personal Consumption Expenditures (PCE). PCE indicated last week that inflation rose 0.9% in March and that was much higher than what was expected. The Core rate, which takes out food and energy was up 0.3%. Yes, inflation remains at a 40-year high!

THIS WEEK IN THE MORTGAGE MARKETS

Economic News Calendar

Monday – 5/2/22

ISM Manufacturing

Construction Spending

Tuesday – 5/3/22

Reserve Bank of Australia

Factory Orders

JOLTS (Job Openings & Labor Turnover Survey)

Wednesday – 5/4/22

ADP Private Payroll

Trade Balance

ISM Non-Manufacturing

Fed Interest Rate Decision

Fed Chair Powell Speaks

Thursday – 5/5/22

Bank of England

Challenger Job Cuts

Initial Jobless Claims

Nonfarm Productivity

Unit Labor Costs

Friday- 5/6/22

Nonfarm Paytolls

Average Hourly Earnings (month-over-month)

Average Hourly Earnings (year-over-year)

Average Weekly Hours

Unemployment Rate

This week home loan rates may significantly be impacted by the wealth of important economic news. ADP Private Payrolls and the Jobs Reports will be released plus the Federal Reserve’s Interest Rate decision. It is the opinion of the Martini Mortgage Group, the Federal Reserve will hike 0.5% however the real story for Raleigh mortgage rates is what will the Federal Reserve do with their balance sheet which includes mortgage bonds.

The Federal Reserve increasing the Federal Funds Rate has no significant impact on Raleigh mortgage rates. Credit card rates, Home Equity Lines of Credit (HELOC) and car loans, for example, are based on the Prime Rate and the Prime Rate is based on the Federal Funds Rate. So a hike of the Federal Funds Rate will no impact Raleigh home loan rates. However, $2.9 trillion is the number of mortgage bonds purchased by the Federal Reserve since March 2020. The reduction of the Federal Reserves holdings of these mortgage bonds could drive up Raleigh home loan rates.

The Federal Reserve is expected to reverse course and start selling its massive, 2.9 trillion of bonds as early as June. When that happens, other central banks across the world may follow suit. This means the already-stressed bond market may be in for a massive deluge of supply in the coming months, which could put more upward pressure on interest rates. Wednesday’s announcement from the Federal Reserve is so important to the bond market, and why mortgage rates may be impacted.

THE MARTINI MORTGAGE GROUP BOTTOM LINE

Be prepared for more volatility and remember, right now, real estate and the current mortgage rate environment remains an opportunity. From a historical perspective, home loan rates are still very low even with the upward movement in 2022. Mortgage Strategists with the Martini Mortgage Group are here to talk about what you have just read and available to help you on the path to buying you home. Contact the Martini Mortgage Group by dialing (919) 238-4934.

Kevin Martini

kevin martini best raleigh mortgage broker

Kevin Martini | NMLS 143962 | Certified Mortgage Advisor and Producing Branch Manager | Martini Mortgage Group at PCL Financial Group (powered by Celebrity Home Loans, LLC NMLS 227765) | 507 N Blount St Raleigh, NC 27604 | (919) 238-4934 | www.MartiniMortgageGroup.com | [email protected] | nmlsconsumeraccess.org | Equal Housing Lender

Logan Martini

Logan Martini | NMLS 1591485 | Senior Mortgage Strategist | Martini Mortgage Group at PCL Financial Group (powered by Celebrity Home Loans, LLC NMLS 227765) | 507 N Blount St Raleigh, NC 27604 | (919) 238-4934 | www.MartiniMortgageGroup.com | [email protected] | nmlsconsumeraccess.org | Equal Housing Lender

logan martini raleigh mortgage lender with martini mortgage group 2

Filed Under: Buy a Home, Fed Interest Rate Decision, Home Loan Rates, Inflation, Kevin Martini, Logan Martini, MartiniFactor, Mortgage, Mortgage Rates, Nonfarm Payrolls, Raleigh, Rental Property Tagged With: Federal Reserve, Kevin Martini, Logan Martini, Mortgage Tips, North Carolina, Raleigh, Raleigh Mortgage Broker, Raleigh Mortgage Lender

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