CONSUMER RESOURCES

For real estate investors, the biggest planning levers usually are holding period, basis, depreciation history, overall income level, and whether the property is a primary residence or an investment property.  The one-year holding rule still matters because long-term treatment is usually better than short-term treatment at the federal level, but that is only the starting point.

California adds another layer because it generally taxes capital gains as ordinary income.  That means an investor may see a lower federal rate on a long-term gain but still face ordinary-income treatment at the state level.  In California, sellers should also pay attention to withholding rules that may apply at closing even though the final tax calculation is done later on the return.

For rental or business-use property, basis and depreciation records are critical.   Purchase costs, certain closing costs, and capital improvements can affect basis.  While prior depreciation can create depreciation-related gain when the property is sold.  If a property was later converted into a primary residence, some gain may still remain taxable and some depreciation-related gain generally cannot be excluded.

A Section 1031 like-kind exchange can defer recognition of gain on qualifying investment or business real estate, but it does not erase the gain forever and the rules are strict.  Real property held primarily for sale does not qualify.  Investors typically need a qualified intermediary and must satisfy identification and closing deadlines.

For portfolio investors selling securities, tax-loss harvesting and specific-share identification may help reduce realized gains.  But the wash-sale rule can disallow a loss if substantially identical securities are bought within 30 days before or after the sale.   The fallback basis method is generally FIFO, if the shares sold were not adequately identified.