Looking For Best Tax Strategy For Beginning Rehabber
Hi All,
I am new to real estate investment and looking for the best tax strategy over the next couple years. My wife and I had the opportunity to purchase a fixer up, rehab it and sell it in 2005. We could not afford to keep it for two years and, in order to build some working capital, we sold it and bought another. We are rehabbing it and will sell it in 2006. Both of these will have sold in less than a year from their purchase. We also have just puchased a third house which we might be able to keep for 2 years. Since I am reinvesting most of the money, and am using each house as our primary residence, I am wondering if there is any way to defer some or all of the capital gain? Does anyone have any ideas for a future strategy. Thanks
Ron
Sorry, but each sale is a taxable event. Unless you actually own and occupy your primary residence for two full years prior to sale, you will have a taxable event each time you sell your primary residence.
You can lower the tax rate from your ordinary income tax rate to the long term capital gains tax rate, just by holding your house one year and one day prior to sale. Best if you can live in each property for two years prior to sale to eliminate taxes completely.
The best thing to do, if affordable, is pick a house and live in it for at least two years. This way you can avoid the taxes on that house.
Then purchase a house that you will fix up and sell. Use the 1031 exchange to put the proceeds into your next investment property. You can do this 1031 exchange several times into "like" properties to avoid paying taxes on the proceeds. Then when you have enough equity built ($250K if single, $500K if married) buy a house and then move into it. Claim this property as your primary residence, live in it for 2 years, and NEVER pay taxes on that money.
Thanks everybody for the input. Althought the two year deal sure is great, I was hoping that there was still something around like the old 1034 exchange where you could roll over your money into a personal residence. Ron
Quote:
On 2006-02-09 21:23, rn_frank wrote:
Thanks everybody for the input. Althought the two year deal sure is great, I was hoping that there was still something around like the old 1034 exchange where you could roll over your money into a personal residence. Ron
Nope, that went away when the new rules came in which are much better IMO.
rn_frank:
You should not put your primary home in LLC for asset protection. Some people put it in a Land Trust for privacy, but this is not needed. In Florida, you have the best asset protection available to you - Homestead. If you Homestead your primary residence. the property is protected from any judgements, law suits, etc.
Many Enron execs bought million dollar plus homes with the scandaled cash in Florida and Homesteaded them so they could not loose their home (or the money they had in them).
People also do this when being sued in GA because you can Homestead a property as your primary residence even after the suit is filed and they still cannot take your home.