Understanding Capital Gains on Investment Property

Here we are again, in the middle of tax season and trying to understand, or a least our accountants are, the financial implications of the 2009 financial performance of our businesses and ultimately, our personal income. Recently, I was reminded by a long time client of Carmen Commercial Real Estate who purcahsed a building to operate his business about 10 years ago and is now considering selling the building, that many people are not well versed on how capital gains are calculated on the sale of investment property.

I thought an overview of how one calculates capital gains on investment property might be helpful. Since I'm not an accountant, rather than writing this information myself and risking inaccuracy, I thought it prudent to find a good article written by an expert addressing this topic. Thus, I located an article that appeared in the March 2010 newsletter of Gabrielle Glass of First American Exchange Company, which I believe does a thorough job of explaining the topic and walking the reader through an example. Here's a link to this article:

Calculating Immediate Tax Savings

The one thing I want to stress when considering the sale of investment property, consider the tax implications of the sale prior to putting the property on the market. With the help of your accounting and/or tax adivor and your real estate professional, you can get a pretty clear picture of your tax liability from the sale. Further, the results may cause you to reconsider selling the property altogether or to do some tax planning in advance of the sale to position you for down-stream tax implications. An example of this might be to 1031 Exchange, which will allow you to roll gains into another property to avoid immediate taxes from the sale.