Tom (real estate investor) asks:
If I paid $35,000 for a piece of land, and 5 years later sold it for $100,000 do I have to pay the tax on the $65,000 of income all in one year, or would it be spread out over 5 years because that’s how long I owned it?
Answer:
Tom-
First, the sale of this property will not be counted as “income” per se. It is a Long-Term Capital Gain. (As opposed to a Short-Term Capital Gain, as it would be had you held the property for less than one year.) Fortunately, this is good news for you, because the maximum tax rate for Long-Term Capital Gains is currently 15%, which is likely lower than your current tax bracket for regular income.
To answer your question, the tax for the capital gain will be paid entirely in the year that you sell the property, regardless of how long you’ve owned it.
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