Hi fellow LL :-)

A month ago, I've sold one of my rentals and net the profit was around $250K. Luckily I've held it more than a year. So it would be taxed as a long term cap gain at 15%. Still, 15% of $250K is a lot of dough. Any suggestions on reducing the cap gain tax? I plan to sell all loser stocks to help offsets the tax but they weren't much (not even $10K).

I'm in the process of selling another rental property at loss of about $100K. I'll list it in MLS sometimes this week. This would be a big help if I could close it before end of 2018. However we only have 2.5 months left. Sigh...

How about using some documented accounting here.

Have you done any improvements since you bought the place?

Have you incur any expenses associated with the sale?

Some closing costs (buying or selling) can affect your net taxable long term profit, and may reduce your tax.

Pacman,

Congratulations on making $1/4 million! That's a significant achievement.

The only ways I know of to reduce taxes vs. delay them is to have offsetting losses. The strategies you've mentioned (selling loser stocks/properties) would help offset your total liability for the year. HOWEVER, keep in mind that just like deducting expenses reduces taxes, dollar for dollar you are better off to pay taxes and make more money vs. spend money unnecessarily to try to avoid paying taxes.

In other words, while I hate taxes as much as anyone, I don't go buys lots of stuff I don't need to try to offset my tax burden. Likewise, if I thought a down stock had a decent chance of coming back, I'd stick it out and take the gain on the stock vs. take a loss on purpose.

Think about it...

If you take a $10K loss on stock, all that does is negate $10K in cap gain taxes. It's a zero sum. You don't really gain anything, unless you anticipate the stock with drop further you simply lock in the loss at a somewhat less terrible stage.

But what if your stock comes roaring back to life and next year you sell and make a $25,000 profit? It would've been silly to trade $25K in profit (less cap gains of 15%) to avoid $10K in losses.

I know you said you don't have that much stock, but the example works no matter what you do. Be sure to weigh the actual dollars saved vs. what some genius online says (me included).

As much as we all hate paying the taxes, and do everything legal to not pay it, look at the bright side... you made money and enough to cover the taxes plus walking away with a good chunk.

Look at the loss on your next sale... will that loss be useful next year to you or are you better off selling it for even less to close quickly and take the loss this year?

My local RE guru told me years ago paying lots of taxes can be a good thing. It means you are making lots of money!

Of course you want to reduce the bite as much as possible, but those that make money pay taxes.

Congrats on paying more in taxes than some people make in a year.

I'm with gevans. This generally means that you are doing very well. Heck, even with Robert J's example. Yes, I get that California is crazy with taxes -- but the fact that you are paying 20% instead of 15% is not because of California -- it's because your income is over $400,000/year. So, instead of feeling sorry for you for that part, I'm just going to say Congratulations! Well done! Now pay it and enjoy life. :)

- John...