Helping You Generate Maximum Value From Your Investments
Wiles Law was founded in 2007 to help clients maximize the value of their hard-earned dollars and ensure they and their families are well taken care of even in incapacity. As a full-service Estate, Tax, and Business Planning law firm, we help you with proper capital gains tax planning to ensure a more tax-efficient outcome.
As an investor in Charleston, you naturally want to ensure your investment portfolio generates the highest possible returns. The city and its surrounding communities boast a wide range of properties, from condos and apartments to luxury waterfront homes. With its strong economy, thriving tourism, and an influx of new residents, there are plenty of opportunities to grow your assets and build a lasting legacy in Charleston.
However, just like how your income is taxed, any increase in the value of your assets can be taxed by the government, which is known as the capital gains tax.
Capital gains refer to the rise in the value of a capital asset, yielding a higher value than its original purchase price. However, these gains aren’t realized before the asset is sold, which means taxes aren’t fully owed until the asset is sold.
Capital gains tax planning is an important consideration when planning your estate or investments to achieve the best possible outcome for your children and future generations. By understanding the ins and outs of federal and state capital gains taxes, you can maximize the value of your investments by minimizing the taxes owed upon the sale of your investment position or real property.
Investment and capital gains tax planning involves numerous nuances and challenges that you have to navigate to obtain the desired outcome. However, with the expertise of qualified capital gains tax lawyers, you can navigate the complicated landscape surrounding capital gains taxes and develop the right investment strategy that delivers maximum output.
At Wiles Law, we understand that the ever-evolving tax landscape requires a complex strategy to tackle various challenges and achieve desired results. With the depth of knowledge of our capital gains tax lawyers in Charleston, we can help you take advantage of the multiple nuances in capital gains tax planning to reduce the amount of tax you owe.
Every decision you make upon the sale of your investment properties can significantly impact your tax bill. Call upon our capital gains tax lawyers today to assist you with capital gains tax planning and deliver the best possible outcome.
Understanding Capital Gains Taxes in South Carolina
Selling a home comes with a few costs, no matter which state you are in. One of the most critical items you want to consider when putting your house on the market is the real estate capital gains tax you may need to shoulder after the sale.
Unfortunately, it can be tricky to determine which taxes apply to your real estate sale. Still, failing to anticipate the amount you’ll owe to both South Carolina and the Federal government can leave you with unexpectedly hefty taxes and derail your investment plans.
Federal Capital Gains
You will have to pay federal capital gains tax if your real estate sale meets at least one of these conditions:
- The property sold is your second home or investment property.
- The sale of your main residence generated a capital gain of over $250,000 for single filers and $500,000 for married couples.
This means that if you are selling an investment property you initially bought at $200,000 at a sale price of $500,000, you’ll owe tax on the $300,000 profit you gained.
However, you may owe capital gains tax when selling your primary residence if you sell your property and gain more than the exclusion amount mentioned.
For example, if you’re an unmarried or legally separated individual selling a house you bought at $200,000 and lived in for five years for $500,000, you’ll have to pay taxes for the $50,000 you gained beyond the exclusion amount.
South Carolina Capital Gains
Like other states across the country, South Carolina also imposes capital gains taxes on profits obtained from real estate sales. While the state charges up to 7% on your earnings, the deduction for net capital gains has been at 44% for the last two years. In effect, this reduces the tax rate to 3.9%
Is It Possible to Avoid or Reduce Capital Gains Taxes in South Carolina?
With the maximum federal capital gains tax rate at 20% and the state’s net rate at 3.92%, up to 23.92% of your profits may go to your taxes alone. Even if you maximize your home’s appreciation value and gain a net profit of $500,000 from its sale, failing to prepare well with capital gains tax lawyers in South Carolina, you could owe the IRS up to $119,600 in taxes.
On the bright side, there are a few deductions you may be eligible for, depending on your situation.
You may qualify for the 121 Exclusion, which allows individuals to use the proceeds from the sale of their primary homes to purchase another home without paying taxes for the gain. Also called the principal residence tax exclusion, it lets you exclude capital gains from your taxable income if:
- Your capital gains are less than $250,000 (for single filers) or less than $500,000 (for joint filers)
- You owned and used the home as your main residence for at least two of the five years before the sale.
On the other hand, the 121 Exclusion does not apply to investors who use the homes as rental properties or frequently buy and sell primary houses.
As for investment properties, investors can conduct a 1031 exchange to defer taxes for capital gains. For example, selling a $500,000 single-family home and using the proceeds to purchase an $800,000 apartment building allows the buyer to postpone paying capital gains taxes from the $ 500,000 sale.
Your real estate transaction must meet specific criteria to qualify for a 1031 exchange:
- The property to be purchased must be of equal or greater value to the one being sold
- The two properties must be considered like-kind (in similar nature) by the IRS
- The replacement property must be identified within 45 days and purchased within 180 days.
These are just some of the many strategies and tools you can use to reduce capital gains taxes in South Carolina and get the most out of your investment. It is always wise to study your options and proceed with your real estate sale carefully, as the lack of a sound strategy can put you at risk of facing an unexpectedly hefty tax bill.
To learn more about federal and state real estate taxes, consult our capital gains tax lawyers in Charleston. The legal experts at Wiles Law will be happy to guide you through the investment tools you can use to get the best returns on your investment and preserve as much as you can for your loved ones.
Four Best Practices In Capital Gains Tax Planning
Helpful Tips for Reducing the Amount You Owe to Maximize Your Investment Returns
Match Investments with the Right Account
There are several types of investment accounts that offer significant tax benefits. These include 401(k)s, 529 plans, individual retirement arrangements (IRAs), health savings accounts (HSAs), and irrevocable trusts. Understanding your investment options under each account can help reduce your tax burden.
Choose Longer Term Investments
When liquidating investments, consider the time you’ve held on to each investment position. Then, any gain you make is a hit, which means you are automatically liable for capital gains tax. If possible, sell positions over a year old so that you can pay more favorable rates.
Harvest Tax Gains and Losses
Taking advantage of losses and fluctuations in taxable income can reduce overall capital gains tax owed. Tax-loss harvesting means offsetting capital gains with losses in other investments, allowing investors to offset up to $3,000 of ordinary income per year. Tax-gains harvesting, meanwhile, means purposefully waiting until your taxable income is lower to get a more favorable tax rate on capital gains.
Give Away Appreciated Assets
If you don’t need to liquidate assets immediately, consider giving away highly appreciated assets or securities to your heirs or donating them to charity to reduce capital gains tax liability. A direct donation of appreciated securities allows you to forgo paying taxes on capital gains, which also counts as a tax deduction for charitable contributions. Leaving appreciated securities to your heirs gives them a step up in cost basis upon your death.
Customer Testimonial
Why Choose Wiles Law To Oversee The Capital Gains Tax Planning Process
We Help You Develop the Right Strategy
Knowledge and Experience
The legal professionals at Wiles Law leverage their expertise in investment and tax planning to put together a strategy that generates the best outcome for our clients. Our capital gains tax lawyers use time-tested strategies that minimize the taxes you owe on capital gains, maximizing the amount you can set aside for your family’s future. With years of experience in capital gains tax planning, you can count on the legal experts at Wiles Law to develop a suitable plan for you and your family.
Wide Range of Expertise
The legal experts at Wiles Law pull from years of experience working with a diverse set of clients to create the right strategy that meets your needs. Whether you’re dealing with the sale of stocks, bonds, real estate, jewelry, or other capital assets, trust our capital gains tax lawyers to help you come up with a solution that guarantees the most returns from your transaction. Whatever your plan may be, we will place you in the best position to get the most from your investment.
Value-driven Approach
We strive to deliver the most value from any legal advice or investment strategy we develop. Backed by years of experience and expertise in capital gains tax laws, we provide our clients with a level of commitment and attention they expect and deserve. Every step of the way, we employ a value-driven approach by getting to know your investment needs and desired output to create the right tax plan that maximizes net income.
Genuine Concern and Compassion
The field of capital gains tax planning often involves navigating through complicated laws and nuances that make it challenging for most of our clients. At Wiles Law, we help you navigate the complexities of capital gains tax laws and make an informed decision that makes sense for your needs and goals. Should you have any questions or concerns, please do not hesitate to communicate them with us, and we’ll make sure to provide you with the best answer to your query.
Dedicated Legal Staff
At Wiles Law, we believe that all our clients deserve the utmost attention of our foremost legal experts. As your go-to capital gains tax firm, you will be working with a dedicated team of legal experts who will get to work on your case and put together the best plan that meets your needs. In addition, we aim to cultivate a lasting relationship with our clients by ensuring that you’re always working with familiar faces every time you walk through our doors.
Prompt and Reliable Assistance
We remain sincere in our commitment to providing superior legal services to every client we work with. By entrusting your capital gains tax planning needs to us, we return the favor by giving you our utmost attention whenever you require our assistance. Count on us to respond to your most pressing concerns whenever you pick up the phone.
