First Rehab, Holding In Own Name, Tax Questions!

Comments(6)

• 
  joefromphilly18th November, 2003

  If you are already making $90,000 from your regular job, you will not pay SE tax on the profits, just the Medicare portion (2.7% or so). Since you are not keeping the house for more than a year, you would not benefit from the long-term capital gains tax rate, so your profits would be taxed as ordinary income regardless of your business structure. If you go full time with rehabs, then set up an S Corp and pay yourself a salary of around $35,000. On this you will pay the equvalent of the full SE tax, but then all the other profits would be taxed as dividends, not subject to the SE tax.

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  gene_n_shan18th November, 2003

  Thanks for the help, I really appreciate it!

• 
  myfrogger18th November, 2003

  Although you still have exposed liability risk, with your high earned income (over $87,000 for 2003 tax return), you don't have to worry about the high self employment tax so much. You will still pay 2.9% however, which is better than 15.3%!

• 
  64Ford18th November, 2003

  Here's a link to a great 1031 website:
  
  http://www.ipx1031.com/index.html
  
  Another option is to start a Roth IRA, and let the IRA purchase/rehab your properties. A link to Equity Trust which allows self-directed IRA's is:
  
  http://www.trustetc.com/links/realestate.html

• 
  DaveT18th November, 2003

  [/quote]64Ford,
  
  The Unrelated Business Income Taxes due from the business activity within the IRA may be a lot higher that the ordinary income taxes you might ordinarily have to pay by conducting this business from within a taxable business entity.
  
  I would be curious to know if the IRA custodian will even permit this activity within the IRA.

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  gene_n_shan19th November, 2003

  Thanks for all of the suggestions!