The tax levied on profits from the sale of assets is termed capital gains tax and the assets may be real estate, stocks, bonds, precious metals, mutual fund shares or futures and options.
The inheritance of real estate may also come under the laws of capital gains taxation. The rate of capital gains tax may vary with the type of the capital gain. In the case of a short term capital gain, an individual is taxed at the normal tax rate, but in the case of the long term gain, the individual may be taxed at a 15% rate. If the individual falls in the tax bracket of 14% or less, the rate of capital gain tax will be 5%.
The properties or assets that are owned for less than one year are considered to be short term capitals while the properties owned for more than 1 year are considered as the long term capitals.
The capital gains tax for the real estate can be completely avoided if the house that an owner is Capital gains tax for real estate can be completely avoided if the house up for sale is considered his principal residence. This is possible only if the number of days stayed in that house comes out to be two years in total in the last five years by the homeowner. After the house is declared a principle residence, the owner can sell the house without paying any capital gains tax.
In regards to rental property, the owner can convert his or her property into principal residence by staying at least two years in that rental property. The home property does not require being a principal residence at the time of sale. Hence the property owner can rent out the property just a few months before the sale, thus avoiding capital gains tax. In case of the married homeowners, the bride can sell her home to live with the groom and if she used the capital gains exclusion, the bride and groom can use the capital gains exclusion after two years.