Capitol Gains
I invested in a rental 2 months ago. There is a glut of 3 bd 2 ba rentals but the sellers market is great.
House has not rented in 2 months still empty.
I may chose to turn around and sell it for a small profit.
What are the rules on Capitol Gains in this case?
Short term capital gains tax rate would apply. The short term rate is the same as your ordinary income tax rate.
I am out-of-state. Will the taxes be based on the rate of the state the property is in or the rate of the state I reside in?
Thanks bunches
You may also want to consider a 1031 exchange. You fall into a difficult gray area, but it could potentially work. The issue is that for 1031 exchange treatment you must have the INTENT to HOLD the property for rental or investment. It sounds like you had the intent to hold, but the market turned out to be too competitive to rent at this point in time. You could consider structuring the sale as a 1031 tax-deferred exchange. The risk is that the IRS would probably try to disallow the exchange under audit and you would have to argue that you had the intent to hold but could not rent it so that you decided to exchange out of the market and buy elsewhere. This is not always that difficult to argue if you can prove that you were diligently trying to rent (i.e. newspaper ads, property manager, online ads, etc.) and the local market conditions can back up your situation.
[addsig]
Thank you Bill this is great because I have all those things: 4 ads, property manager.
The real estate market is hot, but the rental market for 3 bd 2 bath is ice-cold.