The first question is what percentage of tax do I pay on a home that I flip within 1 yr?what percentage after the 1st year. I believe that the capital gain tax does not apply on a sale after 2 years at the primary residence? Also, If I do sell a property for a gain within the first year or 2 can I put the capital back into another property within a certain time frame without getting taxed, if so how long do I have? If you can move the capital into another property to avoid taxes can you move the capital into another investment like my personal business? I live in Indiana if that makes any difference. Any help is much appreciated. ThANKS!
I have the exact same questions
Can someone please advise
To answer your questions: If you flip an investment non owner occupied property in less then 365 days you will pay short term capital gains which in a nut shell is taxed at whatever your ordinary income would be taxed at. In other words this income receives no special treatment. I think the range is around 10% to 39.6% depending on your income level.
If you flip an investment and have held it 365 days or longer you are subject to long term capital gains which again depending on your tax rate range from 0, 15 and or 20 I believe. 15% is what alot of people seem to fall under for long term cap gains. Soas you see you get a tax break for holding longer.
Regarding other questions, if you have occupied a property 2 out of the last 5 years you can sell and exclude any taxable gain of 250k or if married up to 500k in tax free gains.
Take a look at a 1031 exchange this will allow you to DEFER your taxable gaiin on a property. there are quite a bit of rules and regulations to follow to qualify for this exchange. Nto that it cannot be done but will require a 3rd party intermediary to assist witht he transaction.
I hope I have answered your questions.
You will only qualify for 1031 Exchange treatment IF you had the intent to hold for rental or investment. If your intent was to buy/rehab/flip, then you do not qualify for 1031 Exchange treatment. If you have rented it out and hold for more than 12 months, you should be able to demonstrate that your intent was to buy and hold for investment (and not flip) and should qualify for 1031 Exchange treatment.
That was very helpful
The length of time held does not matter if the intent was always to flip the property. @Chris Masons is correct that the 365 days plays a role, but your original intent of the property is more of a factor.
This has been discussed by several CPA/tax professionals here on BP before, and audits have shown this to be the case. So if your primary business is flipping homes and you happen to hold a couple longer than the 1 year mark, you will still be taxed at the ordinary income tax rates. The IRS sees that you always were engaging in an active business activity and the holding time was just an attempt at circumventing the tax liability, which they will disallow.
The general advice given by the tax professionals (of which I am not one so seek your own counsel) is to keep different activities separate. Do your flips in one business name and your rentals in another in order to help document that the intent with any individual property was always to flip/hold as the specific case may be.
@Bill Exeter Great advice. This was helpful for me as well. After reading up a bit on 1031 Exchanges, it leads me to a follow up question.
It appears you need an intermediary to hold the profit/cash while you wait to acquire the next property. Any suggestions on where to find one and who typically serves this role?
Also, it designates a time limit of 6-months in between investments. Any suggestions or loop holes if I'm not ready to designate or purchase my next property in this time frame?
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