When a Minneapolis resident has a steady job the person likely receives a paycheck for the work the person performs from the person’s employer. That income is taxed by the state and federal governments and the employee is able to keep the portion of the earnings that are not allocated to taxes and other government-run programs. There are other ways, however, that a person may earn money besides having a job and in those scenarios the individual may be taxed on those earnings as well.
For example, many people use real estate as an investment for earning money. They may buy properties to rent for residential or commercial purposes; the income they earn from renting those properties may be taxed. However, when a person sells a parcel of real property the person may be required to pay an additional tax that is classified as a capital gain.
Capital gains are the increases in value that capital assets like property acquire over time. If, for example, a person bought an investment property for $200,000 and then sold the property five years later for $300,000, the person would experience a $100,000 capital gain on the sale. That $100,000 gain from the sale of the property could be taxed at the capital gains rate.
Conversely if an investor bought an investment property for $200,000 and then sold it five years later for $150,000 he would experience a capital loss of $50,000. Capital losses are not taxed. They can be used as write offs on a person’s taxes and individuals who wish to learn more about these write offs may choose to consult tax professionals.
Readers of this real estate legal blog should not rely on this overview of property-based capital gains as legal advice. The sale of capital investments like real property can result in the imposition of additional taxes and individuals who require assistance understanding this process may work with their legal and financial professionals to assess their particular situations.