Capital Gains Tax
What is capital gains tax?In the U.S., capital gains tax is a tax charged to individuals and corporations based on the net total of all their capital gains. Capital gains can be taxed at different rates. There are short-term capital gains to which the investor’s ordinary tax rate is applied– these would be classified as those investments that are sold after being held for a year or less There are also long-term capital gains to which lower tax rates are applied. These would be defined as profits made on assets that are sold after being held for more than one year. Listed below are a few questions answered by the Experts on issues related to capital gains tax.
I live in Australia. If I have inherited a house through a will, do I still need to pay capital gains tax on it?In Australia, there is a capital gains tax charged on inheritance. However, if you are a relative of the person who left the house in their will to you, you will not have to pay capital gains tax on the house.
What is the statute of limitations for capital gains taxes owed?Typically, from the time the IRS sends out a tax bill, they have ten years to collect on the tax owed. However, this only applies to the federal tax collector. The ten year rule does not apply to the state tax collector. There are some states in which where there is no statute of limitations to collect on taxes. Having said this, there are special circumstances in which the IRS can continue to pursue the taxpayer for taxes owed. This would include situations like an incomplete bankruptcy or wherein the tax is not discharged, filing an Offer-in-Compromise, or signing a Form 900 Waiver that gives the government more time to get back the tax due. Additionally, if you never file a tax return, the statute of limitations does not apply. But if the IRS files a Substitute-for-Return (SFR) for you, they would have ten years from the date of filing to get back the taxes owed.
Finally, if you want to find out when the statute on your tax bill expires, you could request a Record of Accounts (ROA) from the IRS for each tax year that you have not paid taxes for as yet.
Can I avoid paying capital gains tax on the sale of a second home that was deeded to me five years ago and that has never been lived in but only used as a rental property?There will be a tax on the property since gains that are made from the sale of property that wasn’t the individual’s primary residence doesn’t qualify for the primary residence exemption of $250,000. In order to offset the capital gains tax, you can create a list of all expenses that have been incurred in renovating the house or maintaining it and deduct this from the money received from the sale.
If a vehicle that is part of a family trust is sold, would it incur any capital gains tax?The trust would be responsible for paying capital gains tax on the vehicle if the sale price exceeded the purchase price of the vehicle. In most cases, this doesn’t happen unless the vehicle is a collectible. Also, since the income is generated from selling a trust asset and not from interest earned or from trust business, you would not be liable to pay income tax.
There are several rules and regulations concerning capital gains tax and every taxpayer needs to be aware of them if they are liable to pay this tax. While the questions above may have clarified a few doubts on the issue, there could be others that are specific to your situation. Direct these queries to Lawyers who can offer professional insights and opinions to deal with your case.