Subdividing Land - How Does Capital Gains Tax Work?

Land capital gains tax can be an issue that is very confusing to people the first time they face it. Since the capital gains tax is something that few people have to face in their everyday life confusion is natural. People wonder what capital gains tax deductions they might be able to file when faced with a capital gains tax situations. One common strategy is the capital gains tax main residence exemption.

What Is the Capital Gains Tax Main Residence Exemption?
The capital gains tax main residence exemption is one strategy people employ in order to avoid high capital gains taxes. In such a scenario, a couple can have one exemption against the capital gains tax for their primary place of residence. For example: If a couple owns several homes all over the country and sells them, they will have to pay the capital gains tax on the profit gained from the sale of each property. Their main place of residence, however, can be used as an exemption. If the couple remains unmarried each person in the relationship can claim one property for their exemption, thus doubling the value of said exemption. It is an interesting strategy, as it presents a rare tax benefit for not getting married while marriage is often used as a tax benefit in itself.

Using the Strategy
In a way, this is a subdivision of land. You could, in theory, split the property in half to both people in the relationship in order to cut down on the amount of capital gains tax owed. Each person can then take advantage of the capital gains main residence exemption. At that point it can be a bit of a risky venture, since there are no binding agreements such as marriage to prevent one person from taking the halved property over the other. Still, it can be effective in avoiding the capital gains tax.
 
One thing many people struggle with is understanding exactly what the capital gains tax is. The capital gains tax is a tax assessed on the profits from the sale of large, high value commodities. The easiest explanation is the following. If a person receives a house, say as part of an inheritance or comes about it another way, then sells that house for more than the value of what they paid for it, they must pay the capital gains tax on the profit from the transaction. It is not something that is an everyday occurrence because many people do not have the assets that cause the capital gains tax to go into effect. Because it comes only on high value commodities it can be an expensive tax. That is why strategies such as subdividing land can be very handy in lowering the tax.
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