Capital Gains Rates

The maximum federal tax rate on capital gains is 15%, whereas wage income is taxed at 35%. Then Wisconsin income taxes are added on top of that – up to an additional 6.75%. A total of over 40%. In all the dreaded capital gains tax that haunts many a new investor is in fact a bargain compared to the bit Uncle Sam takes out of our earned income.

Remember, capital gains requires that you hold a property for 12 months or more before selling and that it was held for productive use (i.e., as a rental, not a long-term fix and flip).

Special Exemption for Principal Residence

If you sell your residence, the first $250,000 is exempt from gain or $500,000 if you are married. This requires that the residence was used as such for two of the last five years.

1031 Exchanges

Under IRC Sec 1031, you can roll your profits from a rental property into more real estate and defer paying taxes altogether. Your tax basis rolls into the next property.

Source: “Reduce Your Taxes by Investing in Real Estate” by William Bronchick, JD

We encourage you to consult with a tax professional to develop the best tax strategies for your personal circumstances.