If you spend $80 for something, that's your "cost basis".
If you sell it for $100, your gain is $20.
If you're in the business of selling that thing, the gain is "ordinary income" and is taxed at your "marginal rate" ... say 33% if you're a high earner. So you keep $13.34 and give the government $6.66.
Let's say, though, you have held it for a couple of years, and qualify for capital gains treatment. Say that treatment caps the rate for your gain at 20%. You keep $16, and give the government $4.
But remember, if it's a house and you get nonrecognition ... there's no tax whatsoever. That's why it can be good to move every two years or so, because the tax laws give you nonrecognition on gain if you've lived in the house two years. It's a license to raid the treasury!
On a more realistic basis if I make $14,000 on a rehab and flip I am liable to pay the government around 4600 dollars. That is rediculous. I am in a much lower tax bracket so I am sure it will be a little lower but that is still rediculous.
You have a point but I work for the government, pay the government, and get screwed by the government. I would rather they lay off for a while you know what I mean.
I always hear "2 of the last 5 years", Well what if the house is NEW and the owner liived in it 3 years. Would he be exempt? Or would he have to own it for 2 more years?
You should be able to have write offs against the property. If you are doiong it as a business there are alot of write offs you can use. I would contact your accountant, you have to pay something but might be able to save some money through business expenses and write offs
Yes that would also apply. The key is that if you owned a property two years then you must have lived in it and it must be your primary residence to qualify.
Say you owned a property for the past 5 years, and lived in it 3 out of the 5 years, but the most recent two years you wrote it off as a rental, then sorry, no go.
I here there are some changes coming into play, because I know there are several people rotating homes in CA every two years and with values the way they have been going up. I know a coupled making 150-250K every two years. Not bad.
Also, you can go to www.irs.gov for info.
PS you are limited to $250k per individual and $500K per couple I believe. I am not quit sure on those number.
If you spend $80 for something, that's your "cost basis".
If you sell it for $100, your gain is $20.
If you're in the business of selling that thing, the gain is "ordinary income" and is taxed at your "marginal rate" ... say 33% if you're a high earner. So you keep $13.34 and give the government $6.66.
Let's say, though, you have held it for a couple of years, and qualify for capital gains treatment. Say that treatment caps the rate for your gain at 20%. You keep $16, and give the government $4.
But remember, if it's a house and you get nonrecognition ... there's no tax whatsoever. That's why it can be good to move every two years or so, because the tax laws give you nonrecognition on gain if you've lived in the house two years. It's a license to raid the treasury!
On a more realistic basis if I make $14,000 on a rehab and flip I am liable to pay the government around 4600 dollars. That is rediculous. I am in a much lower tax bracket so I am sure it will be a little lower but that is still rediculous.
Actually writing out those tax checks does so much for one's clarity compared to having money slip away on pay stub deductions....
You have a point but I work for the government, pay the government, and get screwed by the government. I would rather they lay off for a while you know what I mean.
I always hear "2 of the last 5 years", Well what if the house is NEW and the owner liived in it 3 years. Would he be exempt? Or would he have to own it for 2 more years?
Scott
You should be able to have write offs against the property. If you are doiong it as a business there are alot of write offs you can use. I would contact your accountant, you have to pay something but might be able to save some money through business expenses and write offs
to Scott,
Yes that would also apply. The key is that if you owned a property two years then you must have lived in it and it must be your primary residence to qualify.
Say you owned a property for the past 5 years, and lived in it 3 out of the 5 years, but the most recent two years you wrote it off as a rental, then sorry, no go.
I here there are some changes coming into play, because I know there are several people rotating homes in CA every two years and with values the way they have been going up. I know a coupled making 150-250K every two years. Not bad.
Also, you can go to www.irs.gov for info.
PS you are limited to $250k per individual and $500K per couple I believe. I am not quit sure on those number.