Q:

How do you avoid capital gains tax?

A:

Quick Answer

Avoid capital gains taxes, or lower your capital gains tax liability, by claiming losses, deducting contributions to a health savings account, selling a residence, renovating a home and contributing to retirement funds, according to David John Marotta for Forbes. The business magazine lists 14 specific tax loopholes to avoid capital gains taxes.

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Full Answer

Keep track of your capital losses throughout a tax year to write them off. Losses offset capital gains, and as of 2014, excess losses up to $3,000 can offset income rather than capital gains. Losses can be stored up for future tax years, notes Marotta.

Exclude up to $250,000 of profits from the sale of your primary residence from capital gains, according to Realtor.com. Couples who file jointly can exclude up to $500,000 of profits from the property's sale. The home must be your primary residence, owned in your name for at least two years and lived in for two out of the past five years to make the claim. This type of exclusion works for a home that increased in value since you bought it, and renovations can increase a home's value even more, states Marotta. Contribute money to a traditional IRA, 401(k) retirement plan, Roth IRA and health savings account to defer paying taxes. Money sent to these accounts does not go toward income for tax purposes, and HSA contributions are tax-deductible altogether. The caveat is that these methods take a lot of paperwork, time and effort to achieve.

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