How Are People Profiting From Flipping If Capital Gains Have To Be Paid?
Investors who are flipping obviously are not living in these properties and do not hold them for 2 years so how are they profiting without capital gains being paid?
[ Edited by angiemcp on Date 11/16/2005 ]
I’m not really sure what you are asking here. How capital gains taxes are treated has been answered in your other posts.
But if there is no profit in a deal, there’s no capital gains. However, if someone flips a property and makes a profit, they’re going to pay taxes on it -- sooner or later.
I might suggest finding a good CPA or tax advisor that knows REI, and let them show you how to minimize those taxes. Or, how to defer them. Or, how to utilize a 1031. Etc.
But the bottom line…if you make money, you have to deal with taxes. That’s just the way it is.
If people "flip" the properties, the IRS will probably consider the property invetory. As such, capital gains are not available. Flippers who conduct their business as individuals are subject to ordinary income PLUS self employment taxes.
To obtain LT cap. gains tax rates you need to rent the property out for at least one year before selling. This can often be done by buying the property and signing a lease to own deal with a tenant that is interested in buying the property at the end of the lease.
Angiemcp,
If you’re talking about the 2yr. rule for the $250k tax exclusion, that only applies to a property that’s your primary residence and which you’ve lived in 2 out of the last 5 years.
If it’s an investment property that you’ve owned for less than a year, it’s short-term capital gains – which is typically treated as ordinary income.
If you’ve held it for over a year, it’s long-term capital gains - which is typically at 15%.
There are a lot other factors that affect this, but the above is a rough guideline.
And as I mentioned in my previous response, try to find a good CPA or tax advisor that knows real estate investing. They would be the most qualified to help and advise you in your particular situation.
This is the USA. Uncle Sugar charges rent to do business here called taxes. A good CPA is our rent negotiator.
Jim
Quote:
On 2005-11-16 09:02, angiemcp wrote:
Investors who are flipping obviously are not living in these properties and do not hold them for 2 years so how are they profiting without capital gains being paid?
They make profit when they buy
It means, if you want to flip, you have to consider taxes i.o. to make profit, WHEN you purchase the property and do your due diligence in regards of repais and other costs.