“Know when to hold ‘em and know when to fold ‘em,” goes the old Kenny Rogers song. Turns out, smart investors know that holding ‘em – real estate assets, that is – is the route to building wealth. Among the many benefits of buying and holding income property: dodging the bite of the dreaded capital gains tax.

The capital gains tax is imposed on profits made from the sale of assets during the applicable tax year. That includes investments of all kinds, and the sale of personal possessions and property. Capital gains taxes are assessed based on income, with a new 3.8% net investment tax applied to higher income taxpayers, so it’s possible to lose a significant amount of profits from the sale of an asset.

Since the capital gains tax hits when assets are sold, it’s no surprise that those who sell high-end assets like precious metals, stocks and real estate can expect to see a dent in their gains from a sale.

Capital gains taxes become an issue not just because of the fact of selling an asset, but also in terms of how long an asset is held. The 2014 capital gains tax statutes set different rates and conditions for short term and long term assets that are sold in a given tax year.

Short-term capital gains are typically taxed at the highest rates – equal to an investor’s ordinary income tax rate. That applies to assets held for less than a year, hitting “house flippers” who turn over several properties a year particularly hard.

On the other hand, long-term capital gains rates are typically lower. But those rates vary considerably, depending on the kind of gain, and a taxpayer’s income. Here too, precious metals investors take a bigger hit, because those assets are generally taxed as collectibles with a higher tax rate of up to 28%. Sales of certain kinds of property, though, factor in depreciation of the asset and come in at a tax rate of 25 or less%.

But capital gains taxes are imposed when an asset is sold. That means holding mortgaged income property for the long term, as Jason Hartman recommends, keeps income flowing, tax breaks coming, and your own money in the bank – with not a capital gains tax in sight.  (Top image:Flickr/rutio)

Read more from Jason Hartman:

Real Estate Outlasts Gold for Investing Success

ROI Comparison: New York vs. Denver

The Jason Hartman Team

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