Capital Gains Tax Home

Capital gains taxes are one of the things that keep the wheels of government -- particularly the wheels of the taxpayer-provided limos members of Congress get driven around in -- turning. Taken as a whole. they are an excellent, textbook example of the old adage that politics is the art of rewarding your friends and punishing your enemies.

Congress routinely tweaks the Capital Gains Tax codes to reward both specific favored special interest groups and even individual taxpayers -- usually of the large campaign contributor variety. If you find this hard to believe and want to verify, spend a few days, weeks, months or years visiting the tax codes. You'll find, as just one example that made a bit of news not so long OK, bills that offer such "tax relief" as "50 percent reduction in capital gains tax on profits from the sale of a certain dental clinic located in the 400 block of Main Street in Albany, New York.

Unfortunately, for hard-working, middleclass home owners, Congress doesn't consider them friends that need to be rewarded. Oh, they get an occasional bones tossed in their direction in election years, but that's about it. The sad fact is that, unlike former Senator Daniel Patrick Moynihan's dentist, if you sell your home for more than you paid for it you're going to get nailed for the full tax boat on your profit.

Which means that it is imperative that you do everything you can to minimize that profit by writing off every expense and using every deduction available to you.

The most important prerequisite for reducing the taxable profits on your home sale is a file cabinet full of records and receipts. Don't wait until you've been living in the house for ten years and have started to think about selling to begin to prepare your paperwork. Starting to build your paper trail even before you carry your significant other over the threshold is not one minute to soon. Save, annotate and store every scrap of paper -- from hardware store receipts for toilet and sink repair parts to the contract with the company that installed your swimming pool or repaired the leaks in the roof -- relating to money you spent maintaining and improving the property -- both the physical structure and the grounds.

Step two is hiring an accountant who can take all those meticulous records and use them to maximum advantage to reduce your capital gains tax liability.