Capital Gains tax on selling your property in 2020.

by Mounica Kota | Oct 26, 2020 | capital gains, income tax, IRS, tax filing, tax savings, taxes

Capital Gains tax on selling your property in 2020

When you are selling real estate which has been held by you as an investment, the tax implications might be different based on the period for which you have held the property. The tax rules also depend on whether the property is a home or any other category of real estate. If it is a home sale, then it is considered as a particular type of capital gains which has its own set of taxation rules.

If you are selling property that you have held for less than a year, then it is known as Short-term capital gains. You would have to pay taxes for the Short-term capital gains at the same rate as that of the Income taxes. However, the rates are based upon the income bracket under which you fall.

When you are selling property which you have held for more than a year, then the profits obtained is known as long-term capital gains. The rates at which the long-term capital gains are taxed are your taxable income, your filing status which can be single, married, and filing taxes separately and married and filing jointly/head of the household.

Let us have a look at the tax rates for the long-term capital gains of the year 2020.

a.Individual rate or when you are filing as a single

Income	Long-Term Capital Gain Rate
$0 to $40,000	0%
$40,000 to $441,450	15%
$441, 451 or above	20%

b. Married and filing taxes jointly

Income	Long-Term Capital Gain Rate
$0 to $78,750	0%
$78,751 to $488,850	15%
$488,851 or above	20%

c. Married and filing taxes separately

Income	Long-Term Capital Gain Rate
$0 to $39,375	0%
$39,376 to $244,425	15%
$244,426 or above	20%

d. Head of the Household

Income	Long-Term Capital
$0 to $52,750	0%
$52,751 to $461,700	15%
$461,701 or above	20%

Example to illustrate capital gains tax implications on Real estate

In case you are married and filing taxes jointly along with your wife. You and your wife have a taxable income of $200,000 for the year 2020. By this, you would be included in the tax bracket of 15% for the year 2020.

Then you had purchased land in California less than a year ago. However, you had some emergency and needed cash. You had estimated a profit of $10,000 when you had purchased the land. If you sell it now immediately it would be a short-term capital gain and you would have to pay tax $2400 for it. But, if you waited for some more time and sell it then it can be considered as a long-term gain and would be taxed at 15%. So, you would have to pay $900 less or $1500 for the land. Thus, you would have an $8500 gain on the investment.

How much tax can you exclude?

If you are selling the house in which you are staying current, then your capital gain would not be taxed up to $250,000 if you are filing your tax returns as a Single.
This exemption is based on the IRS Section 121 Exclusion.
If you are married and are filing your tax returns jointly, then you can avail of the benefit of a tax exemption of up to $500,000.
You would qualify for this exemption only if you are the owner of the home and have used it as your primary residence for a minimum period of 2 years out of the five years before the sale date.
There can be some factors which might not let you avail this normal exclusion such as

If you are liable to pay expatriate tax
If the home or the real estate which has been sold by you was not your main residence
If you have not lived there for 2 years out of the 5 years before the sale
If you have not owned the house even for 2 years out of the 5 years before the sale of the house.

If you are married and are filing your taxes jointly, then only one out of both of you must satisfy the owning criteria to avail of this tax exclusion.
You can still claim the tax exclusions even if any of the criteria are not satisfied if the house was sold or exchanged due to some changes in your employment place, health issues, or any unexpected circumstances.

How to file your Capital Gains Tax?

In 2019, the IRS had said to report your capital gains and losses on Schedule D and report the amount on your Form 1040. However, now if you are receiving Form 1099-S, Proceeds from Real Estate Transactions, you should report about the sale of the home even though the gain obtained from the sale is excluded under the IRS Section 121 Exclusion.

Conclusion

So, these are the important tax implications on any capital gains you have obtained by selling property. You should also keep in mind that if your investments are being sold they might be subject to an additional 3.8% income tax.

Should capital gains taxation affect me?

by Mounica Kota | Jan 24, 2020 | capital gains, income tax, Investment & Income, tax deductions, Tax Refund, Taxation, taxes

Should capital gains taxation affect me?

Capital gains taxation a lot of things that we own for either personal use or for investment purpose usually qualifies as a capital asset. Some common examples of capital assets include house, property, bonds, and stocks held as an investment, home furnishings, etc.

When you sell any of these capital assets and make some profit on them, the capital gains taxation come into the picture. The basis of capital gains taxes is that when you sell or exchange your capital assets, you do so at a higher price than you had bought them. Similarly, if you sell a capital asset at a lower price than you paid to buy the same, it would be tagged as a capital loss.

Classification

Capital gains are either classified as long term capital gains or short term capital gains. Here are some details about each category.

Long Term Capital Gains

If you hold on to a capital asset for a minimum of 1 year and then decide to sell or exchange it, any gains that you make would be long term capital gains. And the applicable taxes also vary depending on the type of capital gain. For long term capital gains, most individuals would end up paying no more than 15% as taxes.

There is a possibility that some or all your capital gains might be even taxed at 0% if your income is less than $78,750. The standard rate of 15% is applicable if your income ranges between $78,750 and $434,500 for single taxpayers and between $78,750 and $488,850for taxpayers who are married and filing jointly.

Citizens with annual income exceeding the above, the capital gains tax works out to be 20%. Certain capital assets such as collectibles, selling stocks of small businessses, etc. are taxed at a maximum of 28%.

Short Term Capital Gains

Any assets that you sell or exchange within a year of buying or acquiring it qualifies as sort term capital gain. In the case of any short term gains, the gain is added to your annual income and taxed accordingly.

One of the major benefits of categorizing these gains is that you are entitled to lower taxes. If the same amount were to be taxed like your income, you would end up paying higher taxes. However, with short term and long term capital gains, you can reduce the tax liability by a considerable margin.

As a rule of thumb, short term capital gain taxes tend to be on the higher side. Since it is dependent on the annual income, the maximum taxes can go up to 37%. On the other hand, long term capital gains can be up to a maximum of 20%.

On the other hand, if you sold a capital asset at a lower price than what you acquired it for, you would incur a capital loss. And it is important to know that you can use those losses to offset any of your capital gains. They can offset gains up to $3,000 with the help of capital losses.

If you stay in the house that you are putting up for sale for a minimum of two years, capital gains up to $250,000 for individuals and $500,000 for married couples is tax free. Thus being aware of the taxes can save the day for you.

If you own any of the capital assets mentioned above, you are entitled to pay capital gains taxes on the selling of these assets. The presence of capital gains taxes impacts you in more ways than you realize. For starters, unless it is short term capital gains, you will end up paying fewer taxes.

Reference:

https://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed

https://taxfoundation.org/capital-gains-taxes/

https://www.irs.gov/taxtopics/tc409

Buying a property in India? Here’s all you need to know about taxation norms

by Mounica Kota | Jan 17, 2020 | capital gains, Tax Break, tax deductions, Tax implications, Tax Liabilities, Tax Planning, taxes

Buying a property in India? Here’s all you need to know about taxation norms

Whether you have bought a property in India or are planning to buy one, here all you need to know about taxation norms, it is quintessential that you are aware of the tax implications. This will help you plan your taxes and make the most of the available tax breaks. And most importantly, it will keep you away from surprises which might burn a hole in your pockets.

Property Taxes in India

In simple terms, any taxes that you must pay for your property would be tagged as property taxes. Primarily there are two types of property taxes in India,

Maintenance Taxes
Sales Taxes

Buying Property in India

Before you can proceed with buying a property in India, you must be aware of the eligibility criteria. There are no restrictions when it comes to buying a property for resident Indians. Indian nationals or people with Indian origin can buy property in India even if they live abroad. However, you cannot buy a property if you have moved to Iran, Nepal, Bangladesh, Bhutan, Afghanistan, Pakistan or Sri Lanka.

If you are neither a resident of India nor Indian, you cannot buy a property in the country. To be a legal resident, you must have spent at least 183 days in a financial year.

Who Must Pay Property Taxes?

A buyer of the property would end up paying most of the taxes in the form of sales tax. And if you are selling a property, you would be entitled to pay any capital gains taxes. And the owner of a property is responsible for paying out any maintenance taxes applicable.

Types Of Property Taxes

Here are the different types of property taxes that one must bear during ownership.

Sales Tax

The sales tax comes into the picture while both buying or selling a property. And the tax collected is used for the following purposes.

Registration charges
- The buyer of the property must pay the registration charges in front of a registration officer. The registration charges are set by the respective states and are usually at 1%.
TDS
- TDS or Tax Deducted at Source comes into the picture when the property transactions qualify to be ofhigher value. The TDS must be paid by the buyer of the property and is applicable for transactions that exceed INR 50 lakhs. The buyer must deduct the TDS from the total transaction value and submit the same to the income tax department.
Service Tax for properties that are under construction
- For properties that are under construction, you might have to pay service taxes. The central government is responsible for these taxes and not the local authorities. The charges are usually 3.75% to 4.5% of the total property value.
Capital gains tax
- If you sell a property and make profits in the transaction, you are liable to pay capital gains tax on the same. Properties held for 2 years, long term capital gains are applicable and the properties which are held for a lesser duration, qualify for short term capital gains tax. Currently, the short term capital gains tax is at 15% and long term capital gains tax is at 20%.
Stamp duty
- The Stamp duty charges are paid to the state government and depend on a variety of factors such as the location of the property, the property, its age, etc. The stamp duty charges vary depending on the state and can range between 35 to 10%.

Being aware of the above property tax types will help you plan your taxes and take appropriate actions so that you are not caught off guard.

Reference:

https://transferwise.com/au/blog/property-tax-in-india

https://www.nkrealtors.com/blog/save-taxes-on-the-sale-of-property-in-india/

https://economictimes.indiatimes.com/nris/tax-implications-for-nris-on-purchasing-property-in-india/articleshow/42085833.cms

Top 10 Tax Refund Takeaways From 2019

by Mounica Kota | Dec 15, 2019 | 401(k), capital gains, IRA, Tax Extension, Tax Liabilities, Tax Payers, Tax Planning, tax return, Taxation, taxes

Top 10 Tax Refund Takeaways From 2019

As winters approach, Tax Refund Takeaways 2019, taxpayers across the country have even less time to plan for their taxes. In no time Spring will be looming and you do not want to be caught in the crosswinds. This festival season, you can set aside some of your time and plan for your taxes, if you haven’t already done this. It is to ensure that your tax liability is low and that you have a better chance at a higher tax refund. Here are the top 10 takeaways considering the proposed changes in taxes in 2019.

1.401(k) and HSA

You can contribute towards traditional IRAs up to the 15^th of April of next year. However, you will miss out on the provisions for 401(k) and Health Savings Account if you do not make any contributions till the 31^st of December. Taxpayers can deductions up to $7,000 for contributions towards health insurance plans.

2.Delay Your Mutual Fund Purchase

If you wish to buy mutual funds during this time of the year, you might want to rethink the decision. Especially if you want to hold them in a taxable account. The problem with buying at this time is that you would have to pay taxes on the year end dividends. This is applicable even if you just purchased the shares.

3.Capital Loss Harvesting

Should you own any stocks that are at a loss, you can sell them and deduct up to $3,000 on the federal taxes that you owe. The only thing that you need to be careful about is that you do not violate the wash-sale rule. According to the rule, you cannot purchase the exact same stock or something substantially similar within 30 days of selling the stocks.

4.Opportunity Funds

You have the option to defer paying capital gains tax if you choose to reinvest in Qualified Opportunity Funds. The Tax Cuts and Jobs Act of 2017 brought the Opportunity Funds into existence. The fund aims at creating jobs and opportunities in communities that are distressed.

5.Charity

On reaching the age of 70 ½ years, senior citizens must take minimum distribution if they have 401(k) or IRA. If you do not need the amount for living, you can send it to a charity. Essentially it is a check issued by the IRA to the charity.

6.Traditional To Roth IRA

Any amount that you withdraw on retirement from a traditional IRAs taxable but any distribution from Roth IRA is fax-free. Roth IRAs also do not have minimum requirements, which can be beneficial to reduce your taxes. You can convert your traditional IRA to Roth IRA, but you need to be cognizant of the fact that the converted amount can be taxed.

7.Opt For Capital Gains Tax

If you belong to the 10% or 12% tax bracket, you can consider selling your stocks that are in green. You can sell stocks that have seen significant appreciation as you do not have to pay any capital gain taxes for the mentioned brackets.

8.Charity

You can club your charitable contributions together for more effective tax planning. You can club your contributions for two years and file in a single year. This will allow you to claim itemized deductions for alternate years.

9.Flexible Spending Account

You cannot carry forward any balance that is in a flexible spending account. It might be a good idea to put the amount to use before it expires.

10.Tax Advisor Services

To maximize your tax refunds, reaching out to tax advisor might be a good idea. And the earlier you meet, the better chances you have of getting a good advisor and good refunds.

Knowing the basics of taxation and ways to reduce liability is helpful in the long run and something that all tax payers must be aware of.

Reference:

https://money.usnews.com/money/personal-finance/taxes/articles/10-year-end-tax-tips

NRI Tax Filing in India has come under scrutiny: here’s all you need to know

by Mounica Kota | Oct 10, 2019 | capital gains, income tax, tax filing, tax savings

NRI Tax Filing in India has come under scrutiny: here’s all you need to know

NRI Tax Filing The Indian Income Tax Department has made strides of improvement over the years when it comes to its processes. Thus, there are higher chances of your tax filing or lack of filing coming under the radar of the Income Tax Department. Here are some prominent reasons why you might receive a notice from the Income Tax Department.

Delay in Filing IT Return

If you fail to submit your IT return by the deadline set by the IT Department, you will most likely receive an intimation from the department.

Misreporting of Capital Gains

The IT department expects its taxpayers to report all the short term and long term capital gains that they have made. Failing to do so might add extra scrutiny to your returns.

Mismatch with Form 26AS

There ideally should not be any mismatch when it comes to Form 26AS, your TDS, Form 16 or Form 16A. Any mismatch between these would warrant notice from the department.

Failing to disclose income

Any taxpayer who fails to disclose income to the IT department would also come under the lenses of the department.

All You Need to Know

If you are an NRI, here is all that you need to know when it comes to tax filing in India.

Residential Status

India, like most other countries that rely on income taxes, depends heavily on the residential status of an individual to calculate income taxes. Individuals satisfying any of the following conditions would qualify as a resident Indian, otherwise a Non-resident.

You have spent a minimum of 182 days during the financial year in question.
You have spent a minimum of 60 days during the financial year in question and cumulative of 365 days in the previous four years.

Taxable Income

For resident Indians, their global income is taxable in India as per the applicable tax slabs. However, if you are a non-resident Indian, you are liable to pay taxes only on the income generated in India. This could include salary received for consultation, rental property in India, interests earned on fixed deposits, capital gains on shares, selling of capital assets, etc.

When to File

NRIs or any individual for that matter, need to file their income tax returns only if their annual income exceeds the minimum threshold of INR 2,50,000 for a fiscal year. For example, if you have only one source of income in India and it is interest earned on your fixed deposits, you would be taxed accordingly. If the interests earned for a year is INR 80,000 you do not have to file your tax returns. On the other hand, if you have one or more sources of income and together, they add up to INR 3,00,000 for a financial year, you will have to pay taxes and file your returns.

Tax Filing Timeline

The standard deadline for NRIs for filing their taxes and returns is 31^st of July. Should there be any changes in the dates, the IT department would notify everyone of the same.

Advance Tax

The concept of Advance taxes come into the picture when the tax liability of an individual exceeds INR 10,000 for a financial year. This is in general to avoid tax evasion. Failing to do so will warrant fines and penalties under Section 234B and 234C.

Staying a step ahead and being aware of the various intricacies of the income tax will help you avoid any notices or fines from the IT department or even coming under their lenses as well.