Capital Gains Taxes are taxes you pay when you sell Investment Property.  A more legal definition would read as follows:  

The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. (Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations)

One of the more common capital gains situations for many tax payers are gains realized on rental property. 

THE BEST WAY TO ELIMINATE CAPITAL GAINS ON RENTAL PROPERTY, is to move into the property for at least 2 years prior to sell the property.  Make the property your primary residence and use the

$250,000 Exclusion on the Sale of YOUR PRIMARY HOME. ($500,000 if you are married)  If you can't do this read our suggestions at the bottom of the page.

WHAT THE IRS SAYS:   (READ WHAT we SAY AT THE BOTTOM OF THE PAGE)

Have you heard of capital gains and losses? If not, you may want to read up on them because they might have an impact on your tax return. The IRS wants you to know these ten facts about gains and losses and how they could affect your tax situation.

Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.

When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.

You must report all capital gains.

You may deduct capital losses only on investment property, not on property held for personal use.

Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.

The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.

If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.

If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.

Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13of Form 1040.

WHAT WE SAY!

If you can't live in your rental property for at least 2 years, than you have to find another way to offset the capital gains taxes.  One of the most legal ways is to turn your attention to a START UP COMPANY.  Home based, of course.  Must be a real entity for the purpose of earning a profit.  BUT, most start-ups don't earn a profit in the first year.  Many don't earn a profit in the second year either.

The problem with this suggestion is that you have to spend money to fund the START UP.  However, monies well spent can bring you a profit in the years to come, as well as offset the amount of taxes you might owe. (Can you say 179?  Ask your tax professional)

ANOTHER WAY TO LEGALLY LOWER CAPITAL GAINS TAXES

If you can't move into your rental property, then consider selling under a "Rent to Buy" purchase.  Accept a down payment, anywhere from $3500 to $25,000 and finance the home for a well deserving young couple.  

Use their monthly payments to finance your lifestyle, plus,

WHAT?  They stop making making payments?   No problem, legally put them out, and sell it again.  You get to keep the down payment.   Yes, they might trash the house, but put all that into the Lease With Option to Buy contract.  Your local attorney will know how to protect you, if you consult with him/her BEFORE you Lease With Option to Buy!

IF IT'S STOCKS OR BONDS THAT ARE CAUSING YOU CAPITAL GAINS CONCERNS, our first suggestion, fits perfecally.

Do you research, determine what kind of business you want to open and then go ahead and sell your stocks.   Just know that the new START UP and the sell of the stock must occur in the same year!