Categories for Obtaining a Capital Gains Tax Allowance

Capital gains tax allowance is one of many strategies that people use in order to lower their responsibility for paying the capital gains tax. The Capital Gains tax is something that can be very bittersweet. Most people don’t realize that they have to pay it until it is assessed. It often comes as the result of an unexpected windfall of money. Unfortunately, as with any large transaction, the government must also get its cut. That is where the capital gains tax comes in.

What Is the Capital Gains Tax?
The capital gains tax is assessed on the profit that comes from the sale of many large, high value commodities. The simplest way to explain it is as follows. Say a person purchases a property for $25,000. They hold on to the property, and later sell it for $40,000. That is where the capital gains tax comes into play. The tax is then assessed on the $15,000 profit obtained from the sale of the property above its original value. This often comes into play with houses, land, precious metals, and other high value commodities. It is not something that is common for every day taxpayers, but those that do have assets of high value are often subject to the capital gains tax.

What Are Capital Gains Tax Allowances?
When people are subject to capital gains taxes, there are certain allowances that people may have in order to lower their tax burden. These allowances can fall into several categories:

Permanent residence allowance – If a married couple is subject to the capital gains tax they are allowed one exemption for their permanent residence. This is allowed as long as the couple does not have a period of absence from said residence of more than three years. If the couple owns multiple properties, they are allowed a tax exemption for their main place of residence.
Transfer of assets – If a couple has multiple assets and they are filing separately, the capital gains tax can be lowered significantly by the transfer of assets. When a husband transfers assets to his wife or vice versa, the transfer of said assets is tax free. It is then common for property to be transferred from one person to the other in order to lower a tax burden. If a husband has a higher tax rate he can easily transfer property to his wife, if she has a lower tax rate, in order to lower the amount of capital gains tax that needs to be paid. The person disposing of the property can then do so at a lower tax rate.
There are several ways to get a capital gains tax allowance. It’s not difficult to figure out anymore because the IRS website has specifically listed all of the details on their website. Should you require further assistance, however, your tax preparer or advisor can help answer other questions.
blog comments powered by Disqus