Selling House I Fixed Up But Didnt Plan Too
I purchased a house to rent out. I invested about $20,000 in repairs to the house. Things changed (couldnt find renter, income decreased). I decided to sell it. Am I still going to pay normal tax or could I pay a captial gains tax instead? I will have owned about 6 months. I dont have a company. Its under my name. I recall seeing this as some tax loophole but cant find where.
If you make any PROFIT on the sale of your property, it will be taxed as a short term capital gain. The tax rate will be the same as your ordinary income tax rate.
Hold the property at least one year before the sale, and you qualify for the long term capital gain tax rate of either 5% or 15% depending upon your tax bracket.
Some people may try to tell you that you're flipping properties and subject to self-employment tax but I think if you don't do this on a regular basis, it should be capital gain. Yes, if you hold the property 1 yr the tax rates would be lower, but weigh this against what it's costing you to keep the property.
You can do a 1031 exchange and postpone the tax. Keep the proof that shows you tried to rent it - for the IRS in case you get audited.