A capital gains tax is a tax that must be paid when a profit is made on a non-inventory asset. An example of a taxable asset would be rental property. Many people don't realize that when they sell a rental property, since they make a profit from it, they are liable to pay a capital gains tax.
The rate of taxation only applies to the profit that you made from selling that rental property. The capital gains tax is not affected by the mortgage loan on the property. If you inherit a property, you inherit it at the value of the house at the time of the original owner's death. If you sell it immediately after receiving it, you will be liable to pay minimal capital gains tax.
The tax from rental property funds entrepreneurial activity and encourages investors to make capital investments by offering them incentives. Many taxpayers believe that they shouldn't have to fund this, that it why so many people are against capital gains tax.
Although capital gains tax on property is beneficial to entrepreneurs and investors, it is troublesome to those who have to pay the tax. There are a few ways to avoid having to do this. One way is to live on the property for at least a year before you sell it. This way, the primary residence exception applies and it will erase most of your capital gains tax liability. Another way is to have the buyer pay in installments. Capital gains tax only applies to the money you earned within that tax year, so if they pay in installments you won't have to worry about this. Also, you can carry over losses from previous years, so that will help get you below the threshold so you don't have to pay a tax.
Capital gains tax on rental property can be beneficial, and it can be harmful. If you are someone who sells rental property and is afraid of having to pay a capital gains tax, it would be in your best interest to learn how to be exempt from paying the tax or how to owe less.