How does capital gains tax on real estate work?

Question

When you sell a house, buy a new one, flip, and sell, when do you pay capital gains tax on real estate? When you buy the new house, or when you sell the new house? (After selling the first house, that is).

Dave Foster · Answer

@Galit Garsiel, the recognition of gain occurs with the sale of an asset.  Other's above have given you some other points of consideration to determine what the tax rate will be.  But it is the sale of an asset the triggers the tax.  this is why one investing tool you'll want in your tax tool kit is the 1031 exchange.  Which lets you sell a piece of investment property (not a fix n flip property) and by using the 1031 process you purchase a new investment property.  Doing this you get to indefinitely defer paying the tax on the gain from the sale.

Benjamin Aaker · Answer

If you are flipping and hold it for a year or less, your sale will be subject to short term capital gains tax and that is the same rate as your ordinary income. Holding it a year or more will be taxed at the capital gains tax rate, up to 20%. If you lived there, see @Katherine Serrell's answer.

Kit Serrell · Answer

CPA here...First off, it depends on if the house you are selling was at any point in time your primary residence. If you owner-occupied for 2 years out of the last 5, you will likely not pay any capital gains tax.

On traditional flips, you will normally pay ordinary income tax on any gain upon the sale since this is considered "active income" which means you pay whatever your individual income tax rate is on the profit.

When it comes to flipping, there is so much involved from the tax side that you really need to talk to a good CPA that specialized in real estate and pay whatever they want you to to help you time things correctly and structure the deals so that you win. It will save you literally thousands and will act as an insurance policy in the event you get audited since someone else did your taxes and you didnt throw them into turbotax and hope for the best.

Bob S. · Answer

Call your accountant

Eliott Elias · Answer

It's god practice to pay IRS soon as profits hit your bank account.

Basit Siddiqi · Answer

properties that you intend to purchase and sell in the near future are not eligible for 1031 Exchange(Aka like kind exchange)

How does capital gains tax on real estate work?

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