Capitol Gains Short/long
are long term CG charged on anything held at least 1 yr and short term anything held less than 1yr? does anyone know what the rates are exactly?
the reason I ask is that after closing last night on our first rehab I have already found another, 1300sq ft home 3/2 on 5 acres AP $155,000 the house is complete garbage and would have to be totaly renovated, (plumbing, elec, roof , furnace, siding, kitchen, both baths) I will do all the work myself and am thinking it will cost around $20,000. and take probly a year or so.homes of this type sell for $230,000 to $300,000 the other thing I could do is push this house into a hole and put a modular home in its place then I would be able to finish sooner and turn it within 6 months more than likely, but this would cost me more $ for the modular and more for CG but I would have the money sooner and it would be less work.
The long term capital gain rates were lowered in May 2003. The rates depend on your tax bracket. If you are in the higher income tax brackets you will pay 15% on the gain, however, the amount depreciated will be taxed at 25%.
Short term capital gains are taxed at ordinary earned income rates.
One concern you might have is that the houses may be considered inventory if your main business is to buy, fix and sell. In that case, you may be taxed at ordinary income tax rates. [ Edited by edmeyer on Date 02/20/2004 ]
The max LT Capital Gain rate is 15%. Anything held less then one year is taxed at your ordinary income rate.
I t makes sense for me to hold most of my REI for at least a year. I have put closings off for several months in order to capture LT Capital Gains.
I do not do anything without talking to my accountant first.
Megabucks:
I like your screenname! Why would you do the rehab yourself? Why dont you go for the megabucks and hire out the work to a rehabber not a contractor. Take less profit, however sell it quicker and work on finding more deals. You certainly have the knack for finding deals. The less you do, the more you make principle is what I am referring to.
Just some food for thought.
Best Riches,
Jeff Adam
[addsig]
that is an interesting Idea Jeff but I am not familiar with how to go about it, I have only done the one rehab so far and made almost 2 years wages after taxes and now have the chance to make around 100k in a years time by doing the rehab myself, and I really enjoy doing the work.
can you explain a little more on how I would make money by buying for $155K then what advertise it and make a few K or what .I would think that if another guy wanted to rehab the house he would just buy it first.
Megabucks:
You have a couple options:
#1- You can "wholesale" it to another
investor. You need to tie it up and
then find an investor to sell it to.
Put an ad in your local paper:
"3 bedroom, 2 bath, needs work"
#2- You can "Wholetail" it to an end-user.
This is my favorite. You clean up
the front yard, slap a paint job on
the outside and sell it to someone
as a handyman fixer. You might
make a little less, but well worth it.
Wholetailing is my own term for
selling something between retail
and wholesale!
#3- You can hire a rehab person to run
the entire rehab. A few years ago,
I trained my painter to run rehabs.
He runs all my rehabs now and
loves it, He subs out everything
except for the paintwork to my guys
and gets paid basically for baby
sitting the rehab. Meanwhile I am
out looking for other properties.
So to answer your question, I would take
one of the above options. Dont spend
your time rehabbing! Spend your time
looking for other deals to wholesale to other investors, retail to end users and
rent out the keepers for positive cash
flow!
Best Riches,
Jeff Adam
[addsig]
Quote:are long term CG charged on anything held at least 1 yr and short term anything held less than 1yr? does anyone know what the rates are exactly?megabucks,
If you are in the rehab business (buy-rehab-resell for profit), in the worst case, your profit is ordinary income taxed at your ordinary income tax rate and, in addition, the self-employment tax rate on your net profit is another 15.3%.
It does not matter how long you hold the property.
thanks for the tax info everyone it answered my ??.
interesting ways of doing rehabs Jeff but REI is not my full time job "yet" we have a family farm so during the colder monthes I want to do some rehabin, maybe I am just greedy but the more I can do myself the more $ there at the end and I don't have to spend time looking for other projects and going to closings and such. but thanks for the ideas I might try one of them some time if I get into it some more.