Understanding Capital Gains Tax on a Real Estate Investment Property

Owning real estate produces steady income for investors, but the sale of residential and business properties can generate a large tax bill because of capital gains.



a group of people sitting at a table using a laptop: Shot of a mature couple going over their finances at home


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Shot of a mature couple going over their finances at home

Investors should understand the various factors that can help them mitigate and potentially defer paying capital gains tax from selling real estate properties.

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Rental property owners will benefit from lower ordinary income tax rates and other favorable changes to the tax brackets for 2018 through 2025, says Michael Underhill, chief investment officer of Capital Innovations in Pewaukee, Wisconsin.

Changes in tax laws have resulted in more complications, and owners of rental properties should invest more time and resources on tax planning, says Sarah Hallock, a tax senior manager for New York-based tax and accounting firm EisnerAmper.

“Recent legislation has granted some benefits to real estate investors, such as the potential tax savings from the 20{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c} deduction for qualified business income and the immediate write-off for qualified improvements,” she says.

On the other hand, the limitation on business interest expense deductions has had a significant negative impact on leveraged rental activities, Hallock says.

“The Coronavirus Aid, Relief, and Economic

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Home Depot (HD) Gains But Lags Market: What You Should Know

Home Depot (HD) closed the most recent trading day at $274.30, moving +0.41{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c} from the previous trading session. The stock lagged the S&P 500’s daily gain of 1.39{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c}. Elsewhere, the Dow gained 0.83{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c}, while the tech-heavy Nasdaq added 1.97{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c}.

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Prior to today’s trading, shares of the home-improvement retailer had gained 1.17{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c} over the past month. This has outpaced the Retail-Wholesale sector’s loss of 0.97{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c} and lagged the S&P 500’s gain of 2.58{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c} in that time.

Wall Street will be looking for positivity from HD as it approaches its next earnings report date. The company is expected to report EPS of $2.57, up 12.72{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c} from the prior-year quarter. Our most recent consensus estimate is calling for quarterly revenue of $30 billion, up 16.38{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c} from the year-ago period.

Looking at the full year, our Zacks Consensus Estimates suggest analysts are expecting earnings of $11.76 per share and revenue of $129.56 billion. These totals would mark changes of +14.73{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c} and +17.54{ac967ad544075fb2f6bcea1234f8d91da186cac15e616dc329e302b7c7326b8c}, respectively, from last year.

Investors should also note any recent changes to analyst estimates for HD. These revisions help to show the ever-changing nature of near-term business trends. With this in mind, we can consider positive estimate revisions a sign

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