Tax Guides

How To Reduce Capital Gains Tax On Real Estate

Owners of real estate in Dallas, TX generally have several legitimate strategies available to manage capital gains tax exposure, and the right approach depends heavily on how the property was used and the owner's future plans. A 1031 exchange allows deferral of both capital gains tax and depreciation recapture when investment or business property is sold and net proceeds are reinvested into qualifying replacement real property through a qualified intermediary, subject to the forty five day identification period and the one hundred eighty day closing deadline. For a primary residence, the Section 121 exclusion allows up to two hundred fifty thousand dollars of gain to be excluded for a single filer, or up to five hundred thousand dollars for joint filers, without any reinvestment requirement, provided the ownership and use test is met. An installment sale under Section 453 spreads gain recognition over the years payments are actually received, rather than eliminating it, which can be useful when a full 1031 exchange is not practical. Cost segregation studies on a newly acquired replacement property can accelerate depreciation deductions going forward, which does not reduce the gain on the property just sold but can improve after tax cash flow on the new asset. Charitable remainder trusts are another structure some owners use for highly appreciated property, though they involve significant complexity and giving up direct ownership. Texas has no state income tax, so these strategies primarily address federal exposure for North Texas owners. This page is general education, and a specific strategy should be confirmed with a tax and legal professional before a sale.