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Forums » Mobile Homes & Mobile Home Park Investing » Capital gains TAX and mobile homes

Capital gains TAX and mobile homes

11 posts by 4 users

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Real Estate Investor


I see that this has been discussed with real estate, but not much discussion about buying and flipping mobile homes and what taxes will apply. I understand the year and a day holding period for real estate, but what about flipping MH's? Will my profits be taxed at short term capital gains? (I think it's 35% or more here in FL).



Note Investor · Kalamazoo, Michigan


If you sell enough to be considered "Dealer Status" in your state you are subject to capital gains even if you are doing contract sales.



Real Estate Investor


Originally posted by Marc Faulkner:
If you sell enough to be considered "Dealer Status" in your state you are subject to capital gains even if you are doing contract sales.



Even if the mobiles are on leased land and you are flipping as personal property? That has me a little concerned..

In FL if you buy/sell more then one mobile home a year they want you to get a dealers license.

Any ideas what the best approach could be or way around?



Note Investor · Kalamazoo, Michigan


That is my understanding of how it works, I could be wrong. I would check with a tax professional in your state to be certain. We pay the gain in the year of the sale.




Marc is correct, if you are selling the home on terms, you have to recognize the capital gain in the year of the sale.

I'm not familiar with Lease-Options, but I'm pretty sure you can treat that as rent income, until the property is sold that is. That would have added benefits such as depreciation and upkeep deductions.



Real Estate Investor


Originally posted by Jonathan VanHorn:
Marc is correct, if you are selling the home on terms, you have to recognize the capital gain in the year of the sale.

I'm not familiar with Lease-Options, but I'm pretty sure you can treat that as rent income, until the property is sold that is. That would have added benefits such as depreciation and upkeep deductions.




Are you talking about real estate, or are you talking about personal property?




Any type of sale where you are creating a note in return for anything.

Whether it be a car, home, pickle, or the rights to something. If you are financing the sale, you have to claim the gain in that year.

It may vary state to state however. But I doubt that it will affect your federal taxes. (i.e. you may not have to claim it on your state, but on your federal you will)

This is all from my research as an investor, not from being a CPA. I've not came across this issue before as I've only dealt with more "traditional" investment types in the past. (i.e. straight renting or straight selling)

From my limited knowledge in the area, the IRS wants you to do it in one of two ways:

Treat it like rent

or

Treat it like a sale

If you are not on the title, it's a sale. If you are, it's rent. (In my book)

John Hyre slates an aggressive tax stance for RE investors, I'm not sure of what he is doing in it, but may want to take a look at it.

http://www.realestatetaxlaw.com/



Real Estate Investor


Jon, thanks for the clarification. How do I stay in the 15% bracket instead of 39% would be?

Am I better off to 'rent to own' for two years rather than create a two year note?




http://www.irs.gov/taxtopics/tc409.html

About the best help I can give. Note:

"Capital gains and deductible capital losses are reported on Form 1040, Schedule D (PDF). If you have a net capital gain, that gain may be taxed at a lower tax rate than the ordinary income tax rates. The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than the sum of your net short-term capital loss and any long-term capital loss carried over from the previous year. Currently net capital gain is generally taxed at rates no higher than 15%, although, for 2008 through 2010, some or all net capital gain may be taxed at 0%, if it would otherwise be taxed at lower rates. "

I believe the 35+% you are talking about is if you treat the sale as ordinary income, which you wouldn't. Unless you received bad tax advice.

Another thing you should "attempt" to do, is make an estimate of how much money you are going to "net" this year. And talk to your accountant about starting to make estimated tax payments.

And as far as structuring the deal, you will have to have a longer talk with a CPA than I can give on here in order to figure that one out. Don't go to an H&R Block or whatever, but an actual CPA firm.

Your first year, it won't make a huge difference, unless your planning on doing more than 3-5 I'd say. But after that, you'll start needing more advice. They'll want to know how many deals you are doing, what kind of investments you have, if you have another job, etc.

I'd be interested in finding out what they would say, as I'm currently waiting for tax season to be over to start my first deal.



Real Estate Investor


Jon,

Thanks for taking the time to answer some questions. I know you're slammed at the office right now!

If anyone else has something they can add to the discussion, I'm sure it would also be beneficial to whoever else reads this thread!



Real Estate Investor · Springfield, Missouri


Originally posted by Jonathan VanHorn:
Marc is correct, if you are selling the home on terms, you have to recognize the capital gain in the year of the sale.

I'm not familiar with Lease-Options, but I'm pretty sure you can treat that as rent income, until the property is sold that is. That would have added benefits such as depreciation and upkeep deductions.



Hi, this is another good reason to do a lease-option with two contracts.

The option price is taxed, under cash basis accounting, as income is earned, generally as it is paid at the time of the option. If the Option price is financed, the income is recognized as it is earned, not as it is received. The lease is treated as rental income.

If the lease credits the option price or if the option price is financed, generally you may have an installment contract. There are tests to be met for the buyer. If they take on aspects of ownership, for example if the buyer is responsible for insurance, maintenance or taxes, it can be a sale. if it walks like a duck and quaks like a duck, it's a duck! If it looks like a sale, provides rights and/or liabilities of ownership, it's a sale!

A value of the lease with an option may be taken into consideration, as well. If therre is a down payment and lease credits that amount to a significant amount of the market value over a term and there is a small residual amount at the end, it may be viewed as a sale

I hope no one does a lease with credits toward a purchase. Especially with Section 8 tenants! Inquire with a CPA as suggested! IMO, Bill


Financexaminer@real estate investor dot com




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