How to Avoid Real Estate Capital Gains Tax

What you'd always hoped for has happened. Your stocks and real estate have grown in value. You can now cash them out and have the money that you need to live more comfortably. Except that there's that pesky issue of taxes. You don't want to have to pay exorbitant taxes on your stock earnings and real estate when you sell them so you're looking for a way to avoid the capital gains tax. Is it possible to avoid capital gains tax in a legal way? You probably won't be able to avoid paying taxes entirely (they've got to get their money somewhere, right?) but you can drastically reduce your capital gains tax if you play it smart.

One of the most common ways that people avoid the capital gains tax is by gifting stocks to their children. You are able to give a certain amount of your stocks to your child as a gift before a "gift tax" is imposed. At the time of this writing, that amount is $11,000 but you should double-check before gifting stocks to make sure that this remains accurate. If your spouse owns stocks as well, this amount may be doubled. You will then transfer the stocks to your child's name before selling the stocks. The amount of capital gains tax is drastically avoided when this transaction occurs. You can learn more about the details of doing this from this MSNBC advice article on the issue.

But that just takes care of stocks, what about real estate? Rather than gifting, the most common means of avoiding capital gains on real estate is to assume real estate losses in the same year as the gain. In simpler terms, if you buy real estate in the same year that you sell real estate, the capital gains and losses will cancel each other out and you may be able to avoid taxes on the capital gains. If you are doing this, you should work with a professional experienced in tax law to make sure that you handle everything by the books. After all, you don't want to make an investment to create capital losses if it's going to backfire on you in the end.

Regarding real estate, you should also know that you reduce a portion of your capital gains if the real estate was used as your primary home and not as a rental property. So, let's say that you've had a rental property for a number of years and it has gained in value. You want to sell it, but you want to avoid the capital gains tax. Would it be possible to move in to the residence for two years before making the sale? If so, you will qualify for exclusion of a large portion of the capital gains tax.

These are the most common methods of avoiding capital gains on stocks and real estate. You can also look into reducing or deferring capital gains through a number of other common methods. These methods include donations to charity, property exchanges, and installment sales. You can learn more from the Wikipedia article on the topic.

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Comments 13 comments

johnr54 profile image

johnr54 8 years ago from Texas

You mention gifting to your children, but don't forget gifting to charitable organizatons that your mention in the last paragraph. You can write off the entire value of the gift, but never have to pay the capital gains tax that way. If you expect to be making gifts, this is the way to do it.


ciidoctor profile image

ciidoctor 6 years ago

thank u


Susan 6 years ago

how many days must you live in a rental home for the two year period you must live in the home to avoid paying capital gains tax?


Mark Randall 6 years ago

Moving into your rental home for a two years in order to avoid paying capital gains is an interesting idea. But it would take planning and foresight to make this happen. Just make sure to keep things legit. But if you do find yourself in tax trouble, you may be able to find direction at the site guardiantaxresolutions.com.


Alternative Prime profile image

Alternative Prime 6 years ago from > California

Hi Kathryn,

Really helpful info pertaining to finances & estate planning. Considering the average person or family is potentially taxed at least two times on the same earnings generated from the same paychecks, any and all hubs like yours related to deductions and or exemptions are always welcomed by me.

One quick note that I'd like to add if I may. I think your article refers mainly to an investment or secondary property and how to minimize the tax burden. Here's some input regarding a primary residence, and as usual please double check my research or consult a professional before writing this on a stone tablet...

*If your single and sell your primary residence and it falls under the "Long Term" capitol gains category your exempt from paying taxes on the first $250,000.

*If married, your exempt on the first $500,000.

Other stipulations or conditions may apply so if anyone's interested in researching on their own you've supplied some really good links...


Lois 6 years ago

Can I avoid or reduce the tax on my vacation property by selling the existing property and purchasing another in the same year?


shoppingqueen profile image

shoppingqueen 6 years ago

Really great advice, thank you!


dablufox profile image

dablufox 5 years ago from Australia

Very interesting, now all I need is a few kids!


quemacoco profile image

quemacoco 5 years ago

great advice. Now I just need to buy some property and stocks.


Andy 5 years ago

Useless article -- this information is available on the IRS website.


jake 5 years ago

can anyone give there properties as a gift to there spouse and not pay taxes


FredJ 4 years ago

If my 76 yr old Mother buys with cash, a Primary residence in another State before her current primary residence is sold. What are the TAX consequences? She wants to buy a house across the street from her Sister and will lose the opportunity if she doesn't act very soon.


Angels with Faith Ministries 501c3 non-profit char 3 years ago

When leaving your estate,donating Real Estate,property,land,vehicles,Rvs,Boats to charity ask that charity what percent of your donation will actually go toward helping those in need,you may be surprised.On average less than 20% of every donation to large charities & an average of 10% of donations to the with causes charities actually goes to helping those in need,the rest goes to pay salaries,overhead,admisnitrative costs,rent for fancy storefronts etc..

5 years ago we wanted to start a REAL charity that gives 100% of every donation goes directly to helping those in need,we help 1000s of families & people every year & 1000s of children every Christmas with 0 funding like those big charities receive,we are all volunteers & are a home based Charity/Church, we do all of our own website,promotional worl,advertising etc on free sites so that not a cent of donations ever goes to costs.Our belief is that when someone makes a donation to a charity they expect & want that donation to go directly toward helping those in true need.we will even disclose to the donor,upon request,exactly who,where & how their donation went & helped

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