Avoiding Capital Gains Tax In a Military Real Estate Sale

Military Real Estate and Capital Gains Tax

Although military personnel usually change residences more frequently than civilians, smart investors know that the sooner they can get into real estate, the better. But for those in the military who wish to purchase a property and plan on selling it in the future, or are thinking of selling an existing one, meeting the requirements for avoiding capital gains tax can be difficult. If this sounds like you, read on to find out more about your options when it comes to avoiding capital gains tax.

Avoiding Capital Gains Tax in Military Real Estate Sales

If you sell your home for more than you originally paid, the resulting profit is known as a capital gain. If your capital gain is no more than $250,000 or $500,000 for married couples, you can usually avoid paying capital gains tax as long as you have lived in the house for two out of the past five years. The law is the same for both military and civilian homeowners with one important exception.

The Military Family Tax Relief Act

In 2003, Congress passed the Military Family Tax Relief Act, which allows both military and Foreign Service personnel to suspend the normal residency period for up to ten years as long as they are stationed at least fifty miles, from their property. In other words, if you have been away due to military service for no more than ten years, and have used it as a primary residence for at least two years out of the past fifteen, than you will most likely qualify for exempt status as long as your capital gain is below the maximum amount. This is good news not only for those in the military looking to sell, but also for personnel who are interested in buying a home and might otherwise have been discouraged by normal the residency requirements.

Capital Gains Tax Avoidance and The 1031 Exchange

If you own an investment property (not your primary personal residence) that has the potential to net a profit greater than the maximum amount allowed for exemption, consider a 1031 exchange, which allows you to avoid capital gain tax by selling your property and purchasing either a similarly priced property or a more expensive one. In either case, the capital gains tax payment is deferred until the sale of the second (new) property. Just keep in mind that the 1031 can only be used for business and investment property, not primary residences.

Remember to see your expert for information about how the laws affect your individual case and for ways to minimize tax liability for residential property that exceeds the lifetime capital gain.

Using these tips and trends will help you to fully enjoy the benefits of homeownership and real estate investment, but please be sure to consult a real estate professional, as well as your personal financial advisor, before making any type of fiduciary decision.