• Skip to primary navigation
  • Skip to main content
(866) 867-8633
  • Partner Login
  • Request a Consultation
Reef Point LLC Logo

Reef Point, LLC

Deferring Recoginition of Capital Gains

  • DST Explained
    • Exit Strategy
    • 1031 Exchange Alternative
    • 1031 Exchange Rescue
    • Guidelines for a DST to Qualify
    • Standard DST & DST Plus
  • Meet the Team
    • Meet Greg Reese
  • Resources
    • Blog
    • FAQ
    • Case Studies
    • Videos
    • Webinars
  • Partner Center
    • Attorneys
    • Business Brokers
    • CPAs
    • Financial & Investment Advisors
    • Mergers and Acquisitions Professionals
    • Real Estate Professionals
    • Partner Portal
  • Contact Us
  • Partner Login
  • Request a Consultation OLD
  • Show Search
Hide Search

Tax Deferrals for Short-Term vs. Long-Term Tax Deferrals: Why It Matters

Reef Point LLC · February 10, 2023 ·

Tax Deferrals for Short-Term vs. Long-Term Tax Deferrals - Why It Matters | AmeriEstate Legal Plan

The federal government considers anything you own or use as a capital asset, including your financial investments. In other words, it has a monetary value. If you sell these assets, the difference between the price you paid for it — adjusted to reflect valuation changes since purchase — and the sale price is a capital gain or loss.

Though the money isn’t earned income, any gains are subject to taxes (capital gains tax), but the rate depends on how long you owned the asset before selling it. However, you do have options for deferral. Deferral is often beneficial for real estate sales, sale of a business or sale of a highly appreciated collectable.

What Is the Difference Between Short-Term and Long-Term Capital Gains?

The difference between a short- and long-term capital gain is the time you own the asset before selling it. If you sell it within a year of your purchase and profit from it, it is a short-term capital gain. Long-term capital gains are profits on assets held for longer than a year before selling.

Are Tax Rates the Same for Short- and Long-Term Capital Gains?

The federal government establishes different tax rates for short-term vs. long-term capital gains. Profits from assets held less than a year have a higher tax rate than those held longer. The Internal Revenue Service’s short-term tax rate equals the rate it charges for your income taxes. Your tax bracket determines the percentage you pay in taxes on your capital gains.

Long-term capital gains are taxed at a lower rate. Generally, the IRS tax rates are as follows:

  • 0% for those with incomes of $41,675 or lower for singles, $83,350 for joint filers and $55,800 for head of household filers
  • 15% for those with incomes between $41,676 and $459,750 for single filers, $83,351 and $517,200 for married couples, and $55,801 and $488,500 for head of household filers
  • 20% for any filers whose income exceeds the maximum level for the 15% rate

The IRS identifies exceptions that can lead to higher tax rates on long-term capital gains. Additionally, most states also levy taxes on capital gains. The only states that don’t are the nine that also do not have an income tax.

Can You Defer Your Capital Gains Taxes?

You can defer your capital gains taxes using specific legal strategies. However, if you have long-term capital gains, you may want to calculate how much you would owe in taxes before deciding whether to opt for a deferral strategy. The benefits may not outweigh the loss of income, especially if you live in one of the nine states that don’t have a capital gains tax.

However, the higher tax rates you incur with short-term capital gains often make tax deferral an attractive option, particularly with higher profits. A 1031 Exchange is a common sales strategy for deferring capital gains taxes on investment property, but you may encounter challenges finding an appropriate property.

A second option is Reef Point’s Deferred Sales Trust. A DST gives you options for when and how you receive payments on the sale of a property. It may reduce your overall taxes on the property and provide a retirement income. It also protects your assets from probate, doesn’t compete with a charitable remainder trust and can rescue you from a 1031 Exchange failure.

If you are interested in deferring capital gains taxes, Reef Point can help. Contact us to learn more about DST.

Sources:

https://www.irs.gov/taxtopics/tc409

https://worldpopulationreview.com/state-rankings/capital-gains-tax-by-state

https://www.realized1031.com/blog/what-does-tax-deferred-mean

Tax Strategy Capital Gains, Deferred Sales Trust, DST, Tax Strategy, Taxes

Welcome

Reef Point LLC was founded by Gregory H. Reese who is one of only 13 Trustees in the US for Deferred Sales Trusts.

Quick Links

  • DST Explained
  • Partner Center
  • Case Studies
  • FAQ
  • Contact Us

Subscribe

Receive invitations to exclusive events, seminars occasional market news, updates, and opportunities from the Reef Point team.

  • This field is for validation purposes and should be left unchanged.

Contact

3525 Hyland Ave., Suite 145
Costa Mesa, CA 92626
714-581-5376
info@reefpointusa.com

  • Facebook
  • LinkedIn

As an authorized and approved Trustee for the Deferred Sales Trust and Member of the Estate Planning Team (EPT), Reef Point, LLC promotes the use of the Deferred Sales Trust™ or other estate planning techniques and is not responsible for recommendations made by other members of the Estate Planning Team, including the Deferred Sales Trust or other tax, legal or estate planning strategies.

© Copyright 2021 | Reef Point, LLC All Rights Reserved | Privacy Policy | Terms & Conditions

© 2023 Reef Point, LLC