Capital Gains On A Partnership Rental
My parterner and I are 50/50 on a rental rehab with are flipping right now. We have only owned the rental property for 5 months and are selling with 30% owner financing. We expect to get about $25,000 profit now ($12,500 each) and the rest from the owner financed note.
How much will be have to pay in Capital Gains taxes? The property is in Denver, CO. We both live in CA.
The way you are planning to sell, you and your parttner will have to pay taxes at your ordinary income tax rates, self employment taxes AND state taxes - this could cost you roughly 50% in taxes. You are not eligible for capital gains rates because you did not rent the property out - if you rent it for a year before selling you are not subject to the self emp. taxes and you can pay capital gains taxes instead of taxes at your ordinary income rates. One thing you might consider to reduce the tax bite by 50% would be to do a lease option where they could buy after 1 year of renting. Good luck!
Why did you purchase the property in the first place? What happened that you are selling so quickly?[ Edited by NewKidInTown3 on Date 06/10/2006 ]
I originally bought this property to get my foot in the real estate door, get cash at closing and pay off my car along with getting something I could better my tax es with. I am selling this one together with another property I have since purchased and rehabbed. The second property is fixed with no PPP. This property has a PPP and turns adjustable in 2 more years so this is why I am selling it. (Before the payments jump up.)
After reviewing your earlier posts on this thread, it seems to me that your second property was also purchased as a rehab that you intended to flip.
I missed this point earlier when I thought you might be correct in applying capital gains tax treatment.
I have revised my opinion. Your second property is still a flipper, and as such gets the same tax treatment that applies to the first property.
The holding period does not matter since capital gains tax treatment does not apply.[ Edited by NewKidInTown3 on Date 06/12/2006 ]