Selling A Property Before 2 Years
Hi,
I was lucky and got into some new home developments in california, and I am up 100k on each. I heard that if I sell right away I will be taxed 40% is this true? If not, how much will I be charged for an immediate flip?
Also if I rent it out for 2 years, can I do a 1031 afterwards?
If I rent it out for 1 year, I heard I will be taxed for 31%
If I were to flip, is there any way to reduce my taxes?
Or is there any way at all to reduce my taxes, anyone have experience in this?
It sounds like you made a good investment. Now you should make a good decision and hire a CPA to help you with this very good problem to have.
Good luck.
Is it me or does everybody in the forums tell you to either: read a book on the subject, read previous posts, or ask for professional advice elsewhere?
You won't be taxed at 40%. It would be a short-term capital gain which depending on your income will be taxed between apprx 15% to 28% (i believe, its been awhile). Long-term capital gains reduce you to around 8% to 20% I believe. If you goto www.irs.gov they have multitudes of information on capital gains.
The 1031 exchange is the best bet if you have a deal lined up. There was recently an article posted on this site about the basics of 1031 exchanges. On the 1031, your not reducing your taxes, your just deferring the payment.
Hope this helps.
thanks rmdane,
I thought you couldn't do a 1031 unless it has been a rental for 2 years.
re the cap gains tax, this is what i gathered
the actual CA tax is 9.3% regardless of holding period. Furthermore the 15% federal rate is a bait and switch. The actual rate is typically far higher. The extra income increases your tax through phase-outs, and if it pushes your gross income over $150k joint, it will likely trigger the alternative minimum tax and its exemption phase-out, pushing your marginal rate on the gain to 22% plus the full 9.3% state rate. making it a total of 31.3% of the gain if you hold more than a year, and about 42% if less than a year.
There is no specific time frame to HOLD title to the property in order to complete a 1031 exchange. You need to have the INTENT to HOLD the property for rental, investment or use in a business. If you rent the property for at least one year you would certainly qualify for 1031 exchange treatment.
You may want to consider moving into the property and converting it to your primary residence. Once you have lived in the property for at least 24 months you would qualify for a 121 exclusion, which allows you to exclude from your income up to $250K in capital gains if you are single and $500K in capital gains if you are married.
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Bill Exeter[ Edited by JohnLocke on Date 06/19/2004 ]
i plan on living in one of them for 2 years, but i have 2 others that will either need to be rented out or flipped
I did a search the other day and posted the summry to another topic.
It had a nice summary of the various STCG and LTCG rates.
You might look at a strategy of moving primary residences to maximize the tax sheltered rather than deferred amount.
Look to your atty / cpa for other strategies to minimize your tax bill.
If you're holding these in an LLC, watch out for CA tax on operating income.
The outher is to hold them, leverage them, and use the cash to do more deals.
Just found it again.
http://www.smartmoney.com/tax/capital/index.cfm?story=capitalgains&nav=LeftNav