I remodeled a home last year and put around $45k into it. I did not sell it until Feb of 2005. Should i place my expenses on Schedule C on hte 2004 return?
Why would you accrue then? Are you using accrual v. cash accounting?
I just finished up my return w/ my CPA, and we took all the expenses in the yr that they were incurred. Too bad I had a loss to carry over to the 1040.
You buy your condo for $200K and pay all cash. Since you own the property free and clear, your equity in the property is $200K. A couple years later, appreciation pushes your property value to $300K. Your equity is now $300K; but, if you sell for $300K, your gain (taxable profit) is only $100K. Your profit represents the difference between your purchase price and your sale price adjusted for any improvements you may have made.
By the same token, if you buy for $200K, put $20K down and finance the rest, your equity is only $20K When appreciation pushes your property value to $300K while your mortgage balance is reduced to $170K, you can say that your equity in the property is $130K. Equity is the difference between the value of the property and what you still owe on the mortgage loan(s).
While I am certainly no expert on taxes, I am not aware of any way to shelter the profit from the sale of your primary residence from capital gains taxes under the conditions you describe. If you wait another six months to satisfy the two year ownership and use requirements, your gain qualifies for the capital gains exclusion.
Hi,
I am not an expert, but if you had to sell in order
to move due to a job change(over 50+ miles),
you may not have to
pay the captial gains taxes, since it will be pro-rated.
Having said that, married tax payers have 500K and
your gain is nowhere near that.
In order to qualify for the 500K married allowable gain, you must have lived in the house for 2 years out of the past 5 years.[ Edited by joecrane on Date 04/19/2005 ]
The Treasury Regulations require that you have the INTENT to HOLD the property as rental, investment or use in a business. Unfortunately, they do not define INTENT or HOLD. Most experts - including myself - recommend a 12 month holding period in order to demonstrate your INTENT to HOLD. Based on the information contained in your post, you should be more than O.K. to do another 1031 exchange at this point in time.
[addsig]
Contrary to what you have been told, a property flip is a dealer disposition even if you sell on lease option or on an installment sale.
As a dealer dispositionAll of your profit is taxable as self-employment (ordinary) income in the year of sale,capital gains tax treatment does not apply regardless of your holding period, a 1031 tax deferred exchange is not available to you, and, self-employment income taxes will also be assessed
Suggest you talk with a competent professional tax advisor concerning the tax treatment for your investment strategy.
Tax free bonds are municipal bonds issued by the state or an agency of the state in which you reside. The income earned on these bonds is free from both federal and state income taxes. Minicipal bonds are not real estate, but the income from them is tax free if issued by the state in which you reside. On the other hand, if you sell the bond for a profit, then capital gains tax treatment does apply to your profit.
Dealer status is somewhat misleading-- it essentially attatches to certain kinds of transactions not to certain people or entities. So it is possible for the same person or entity to be a "dealer" and not a dealer at the same time on different properties.
I do my flips in a separate "C" corporation. I bought an existing corporation which had gone bankrupt and had a whole bunch of tax losses. The gains from the flips are wiped out by the tax losses-- viola no income. After the tax losses in one corporation are used up I convert the corp. from a "C" corp to an S corporation and do long-term hold deals in the same company.
The company cost me about 15% of the aggregate tax losses so I figure this reduces my tax rate to a manageable level even on dealer transactions.
Its a little more complicated than that and of course the devil is always in the details but a good accountant should be able to help you.
I do my flips in a separate "C" corporation. I bought an existing corporation which had gone bankrupt and had a whole bunch of tax losses. The gains from the flips are wiped out by the tax losses-- viola no income.
Thank you commercialking! You are the first to really add a creative/innovative idea for reducing taxes on flips.
I have no specific, formal training in taxes or entity structure. I am just a simple investor who has learned from my own experiences over the past 20+ years.
You should note, that nearly all of these same current questions have already been asked and answered. DaveT gave some fairly extensive responses to the personal income tax questions when he was posting here. You just have to view the older topics in this forum to see what I mean.
No. Your costs are accrued until the property is sold. Report this sale on Schedule C for your 2005 tax return.
Why would you accrue then? Are you using accrual v. cash accounting?
I just finished up my return w/ my CPA, and we took all the expenses in the yr that they were incurred. Too bad I had a loss to carry over to the 1040.
I guess the CPA is a genius or a fool.
Took everything, paint, labor, insurance, etc.
You buy your condo for $200K and pay all cash. Since you own the property free and clear, your equity in the property is $200K. A couple years later, appreciation pushes your property value to $300K. Your equity is now $300K; but, if you sell for $300K, your gain (taxable profit) is only $100K. Your profit represents the difference between your purchase price and your sale price adjusted for any improvements you may have made.
By the same token, if you buy for $200K, put $20K down and finance the rest, your equity is only $20K When appreciation pushes your property value to $300K while your mortgage balance is reduced to $170K, you can say that your equity in the property is $130K. Equity is the difference between the value of the property and what you still owe on the mortgage loan(s).
While I am certainly no expert on taxes, I am not aware of any way to shelter the profit from the sale of your primary residence from capital gains taxes under the conditions you describe. If you wait another six months to satisfy the two year ownership and use requirements, your gain qualifies for the capital gains exclusion.
Hi,
I am not an expert, but if you had to sell in order
to move due to a job change(over 50+ miles),
you may not have to
pay the captial gains taxes, since it will be pro-rated.
Having said that, married tax payers have 500K and
your gain is nowhere near that.
http://www.irs.gov/taxtopics/tc701.html
For 100K, not a bad proposition. If you can have your
employer transfer you to another branch, that would
help circumvent the taxes as well.
My 2 cents.
-Krish
In order to qualify for the 500K married allowable gain, you must have lived in the house for 2 years out of the past 5 years.[ Edited by joecrane on Date 04/19/2005 ]
You are allowed to keep using a 1031 to put off the capital gains. There is not a point when you have to sell rather than use another 1031/
The Treasury Regulations require that you have the INTENT to HOLD the property as rental, investment or use in a business. Unfortunately, they do not define INTENT or HOLD. Most experts - including myself - recommend a 12 month holding period in order to demonstrate your INTENT to HOLD. Based on the information contained in your post, you should be more than O.K. to do another 1031 exchange at this point in time.
[addsig]
btaylor52,
Contrary to what you have been told, a property flip is a dealer disposition even if you sell on lease option or on an installment sale.
As a dealer dispositionAll of your profit is taxable as self-employment (ordinary) income in the year of sale,capital gains tax treatment does not apply regardless of your holding period, a 1031 tax deferred exchange is not available to you, and, self-employment income taxes will also be assessed
Suggest you talk with a competent professional tax advisor concerning the tax treatment for your investment strategy.
Tax free bonds are municipal bonds issued by the state or an agency of the state in which you reside. The income earned on these bonds is free from both federal and state income taxes. Minicipal bonds are not real estate, but the income from them is tax free if issued by the state in which you reside. On the other hand, if you sell the bond for a profit, then capital gains tax treatment does apply to your profit.
Thanks NewKid,
Very informative info, I had those same questions.
Thanks Again,
Bob Tate
Dealer status is somewhat misleading-- it essentially attatches to certain kinds of transactions not to certain people or entities. So it is possible for the same person or entity to be a "dealer" and not a dealer at the same time on different properties.
I do my flips in a separate "C" corporation. I bought an existing corporation which had gone bankrupt and had a whole bunch of tax losses. The gains from the flips are wiped out by the tax losses-- viola no income. After the tax losses in one corporation are used up I convert the corp. from a "C" corp to an S corporation and do long-term hold deals in the same company.
The company cost me about 15% of the aggregate tax losses so I figure this reduces my tax rate to a manageable level even on dealer transactions.
Its a little more complicated than that and of course the devil is always in the details but a good accountant should be able to help you.
Quote:
On 2005-04-09 13:46, commercialking wrote:
I do my flips in a separate "C" corporation. I bought an existing corporation which had gone bankrupt and had a whole bunch of tax losses. The gains from the flips are wiped out by the tax losses-- viola no income.
Thank you commercialking! You are the first to really add a creative/innovative idea for reducing taxes on flips.
Erick,
I have no specific, formal training in taxes or entity structure. I am just a simple investor who has learned from my own experiences over the past 20+ years.
You should note, that nearly all of these same current questions have already been asked and answered. DaveT gave some fairly extensive responses to the personal income tax questions when he was posting here. You just have to view the older topics in this forum to see what I mean.
I take the deductions, but my CPA likes to tie them to a particular property, as that keeps the IRS happier...
Matt -- are you just using a 4-5 column excel spreadsheet with date, location ,mileage, reason, etc.?
Jam200 -- are you tying the deduction to properties purchased or just any property you were checking out?
thanks.