Income Tax
I have a rehab that will be done in about a week and I want to sell it but i dont know how the taxs will work if I use the money i get from the sell to buy more property, I was told that i should hold on to it for 1yr then sell, but if that is the case how do I start making money to live on.
Personally I would add 5-10% sell on L/O and let the cash roll... But it depends on the market and your goals....
Your quick flips are taxed at your ordinary income tax rate. Report your income on Schedule C and Schedule SE.
When you have a little cushion to invest, then start holding for the long term.
Now if I use the money to purchase other property don't it offset the tax on what I got from the sell because I invested it in something else?
No. You may be thinking about a tax-deferred exchange. Your strategy calls for quick flips, and flip property is not eligible to participate in a tax-deferred exchange.
in your case, each sale is a separate taxable event.
Think of it this way. When you buy a property, that in itself is not a taxable situation for you. When you put money into the property, that also does not create taxable expenses for you. But, when you go to sell the property, you will add the purchase price and your expenses, to come up with your tax basis for the property. The difference between your sale price and your basis will be your taxable gain (or, heaven forbid, loss). If you buy a second property, that property will have it's own purchase price, and it's own expenses, so therefore it's own basis, which will create it's own gain or loss when you sell. I hope this helps!
Thank you all for your help.
here in Tulsa the state has a business tax workshop that is fee, that I will be going to on the 28th of this month