Understanding Capital Gains in 2025
A capital gain occurs when you sell an asset for more than you paid for it. Over the past few years, many investors have reaped significant capital gains, particularly from stock market investments and real estate. These gains, however, are subject to capital gains taxes, which can have a considerable impact on your overall tax liability.
How Cost Segregation Can Help
Cost segregation is a tax strategy that identifies and reclassifies building components into shorter-lived assets, such as electrical systems, plumbing, and HVAC systems. This allows for accelerated depreciation, enabling property owners to take larger deductions sooner.
By applying cost segregation strategically to your commercial property, you can:
- Reduce Taxable Income: Accelerated depreciation lowers your taxable income for the current year, leaving you with more cash in hand.
- Offset Capital Gains: Lowering taxable income through cost segregation can offset capital gains from asset sales, such as stocks or real estate, significantly reducing your tax burden.
- Lower Your Effective Tax Rate: By reducing your taxable income, you may qualify for a lower tax bracket, resulting in reduced capital gains tax rates.
Example
Let’s say you’re in the 20% federal capital gains tax bracket and you realize a $150,000 capital gain from selling stocks. Without cost segregation, you’d owe $30,000 in capital gains taxes.
However, if you use cost segregation to generate $50,000 in additional depreciation deductions, your taxable income may drop enough to reduce your capital gains tax bracket to 15% or even 0%, saving you thousands of dollars.
2025 Capital Gains Tax Rates:
Here are the updated federal capital gains tax rates for 2025:
- 0%: For single filers earning less than $50,000 and joint filers earning less than $100,000.
- 15%: For single filers earning between $50,001 and $550,000 and joint filers earning between $100,001 and $600,000.
- 20%: For single filers earning more than $550,001 and joint filers earning more than $600,001.
Key Considerations for 2025:
- Timing Matters: Implement cost segregation before the end of the tax year to maximize its impact on your current taxable income.
- Consult a Tax Professional: Working with a qualified tax advisor ensures compliance with tax laws and optimizes your tax savings.
- Long-Term Benefits: Beyond offsetting capital gains taxes, cost segregation improves cash flow, enhances property value, and reduces future tax liabilities.
Conclusion
Cost segregation remains a powerful tool for mitigating capital gains taxes in 2025. By understanding how this strategy works and consulting with a tax professional, you can effectively use cost segregation to optimize your tax planning, improve cash flow, and achieve long-term financial benefits.
Contact us as CSSI today to get connected to one of our many cost segregation experts and get ahead of your capital gains and start saving money today.