Avoiding Capital Gains Tax
I am also looking at buying a home other than my primary residence to fix and sell. Is there any way to avoid capital gains tax? Is it worth it to buy a second home to fix & sell? Should I be looking more at foreclosures?
The short answer is pay taxes on your profits. You will still make a profit even when the IRS takes their cut. If you plan to hold the property for a length of time before selling a 1031 exchange may DEFER your capital gains tax when you roll the profits into another property. I hope this is somewhat of a start..
its worth it if the numbers work. As for the tax, just pay it. You should still be making a great profit
One more thing, if you fix up and sell, you are in the business of doing this in the eyes of the IRS. This being the case you also have to pay self employment tax on the profit as well.
Talk to others (Lawyer, accountant, etc) about this before you run out and do it (for implications and legalities sake)...
If you have a flexible seller, you may be able to inflate the price by means of a 2nd that is carried, and then severly discounted ($10 or so) so that your HUD reflects a higher purchase price than the cash you actually paid. In short it transferes the capital gains (or losses) to the seller of the house by inflating the purchase price and effectivly raising your basis.
Any comments on this tactic???
I can not begin to tell you how much help my accountant was for me on my first rental property. If you have an accountant, check with him. I think I am fortunate since my CPA also does REI so he knows all the answers to my questions since he's done it before.
I was really hesitant to see him but it was worth the $$$ in hindsight. If you don't currently have one, try to find one that knows about REI... and I mean r-e-a-l-l-y knows about it.
Thanks!
Hibby76, why would the seller be willing to take the hit? Z