Tax implications of simultaneous closing flips?
I have a question about the process of a simultaneous closing. Let's say I contract to purchase an REO property from a lending instution. Now rather than assigning the contract to a rehab investor, I opt to do a double/simultaneous closing.
Do I have to actually take title to the property if I choose a double closing rather than an assignment? If I do take title to the property (even if only for 5 minutes), what are the tax implications of that? Will I be liable for any property or municipal taxes on the property? Also, would I have to wait for the deed to be actually recorded before I can flip it to the investor? My conception is that a simultaneous closing should happen fairly quickly without any delays for deeds to be recorded.
Thanks for listening,
Timothy E. Harris - Eagle Mount Properties
Quote:
On 2003-03-06 19:00, eaglemount wrote:
I have a question about the process of a simultaneous closing. Let's say I contract to purchase an REO property from a lending instution. Now rather than assigning the contract to a rehab investor, I opt to do a double/simultaneous closing.
Do I have to actually take title to the property if I choose a double closing rather than an assignment?
In my experience, YES.
If I do take title to the property (even if only for 5 minutes), what are the tax implications of that?
If you are not in a trade or busines of buying and selling properties, the gain will be short-term capital gain taxed at federal tax rates up to 38.6% depending on your tax bracket. You are in a trade or business if you regularly and continuously buy and sell properties in the same year. There is no set number under the tax law, however, as a guideline if you are making your living doing this, you are probably in a trade or business. If in a trade or business, the gain will be ordinary income subject to federal ordinary income tax rates up to 38.6% (depending on your tax bracket) and subject to self-employment tax up to, essentially, 15.3% on the first $87,000 for the year and thereafter only 2.9% on amounts over $87,000.
Will I be liable for any property or municipal taxes on the property?
Yes, most likely. But it will only be on your differential in value. However, rarely will you get hit with a property tax bill because the property tax is assessed only on certain dates of the year and then only to the record owner.
Also, would I have to wait for the deed to be actually recorded before I can flip it to the investor?
Yes. But if you use a title company or escrow for the closing, they can handle the proper recordings for you. If the deed is not recorded right away, you don't have to worry as long as you are using a title company and the title company handles both transactions (that will also save you on the title insurance policy if you get a "short term binder" policy).
My conception is that a simultaneous closing should happen fairly quickly without any delays for deeds to be recorded.
Thanks for listening,
Timothy E. Harris - Eagle Mount Properties