Minimizing Taxation On Capitol Gain.
Hi folks,
I am going into a situation where we are buying a property and are going to convert to condos and sell piece by piece. We are trying to sell so that the profit is going to be around 50k or so. Now my question is, do I hang on to the property for more than one year and then sell it so the taxation is less? Or do I just take the hit and sell it as soon as I can paying the "full amount" if you will in taxes? We would also like to research the option to not pay taxes on the "profit" by reinvesting it however I am not really sure how that is done so if anyone has any advice that would be greatly appreciated. All I know about the matter is that you have to put it in a trust and use the money within 6 month for another investment. Please correct me if I am wrong.
Thank you in advance, Grush.
I am a pessimist when it comes to the IRS. My pessimistic view of your situation is that you are acting as a developer.
Your business is an active income business and both ordinary income taxes and self-employment income taxes apply. Capital gains tax treatment is not available, regardless of your holding period.
Just my opinion.
A capital asset does not include "property held primarily for sale to customers in the ordinary course of trade or business". On the surface it sounds like the property would be inventory and not eligible for capital gain treatment. For the same reasons, it would not be eligible for a like-kind exchange either.
You may want to talk to a CPA or tax attorney to see if there's any alternatives for your particular situation.
One idea you might run by your tax professional is to find tenants and then lease option to them. The timing of the option may need to be selected carefully but this is something you might look at and you will save real estate commissions as well if it can be done.