Capital Gains On A Tax Sale Flip
I purchased a mobile home lot for investment for $1,600 took a down payment of $1,500 buyer backed out=quit claim and refunded $500. Resold, received another DP for $1,500 closed on the place. I now am in the process of selling the note to a note discounter for $14,500. This will make my profit $17,000 on a $1,600 investment. Now with that all said what tax rate (percentage or dollar amount) am I looking at. The property is in Texas The note is $18,500 finance over 15 years at 10.11% payments of $200. I only had the lot for about 3 weeks. I am too late for the 1031 exchange so I cannot beat the taxes that way. The property was purchased by a Trust that I control so can the Trust operate at a loss and not pay taxes on this or is there another way around capital gains taxes?
Thanks In Advance,
Brandon
Brandon,
You started with $1600, you ended up with $17000 in only three weeks. It appears that your net profit is $15400, taxable at the same rate as your other ordinary income. If you are in the 25% tax bracket, then that is the tax rate you will be looking at.
Without knowing how your trust was structured, I will for the moment assume that it is just a title holding device and not a separate taxable entity. If so, then the presence of the trust is transparent to your tax liability.
Consult your personal tax advisor for specific details.[ Edited by DaveT on Date 07/01/2003 ]
Dave,
The Trust is structured as a seperate taxable entity with it's own tax ID number. I have set it up this way to distance myself for numerous reasons. It operates similar to a corporation with this being my first transaction that has taken place in it. I have 3 more lots that I am in the process of making similar deals. I am going to have to retain the services of a tax professional soon, but I was trying to learn what I can on my own now. With that being said how would I determine the tax bracket that the trust will fall in?
Brandon
What tax return will the trust file? The filing instructions for the trust return should lead you to the answer to your question.
In my very limited experience with trust returns (makes me an advanced beginner), income retained by the trust is taxable to the trust. Income distributed to the trust beneficiary is pre-tax income, reported on Schedule K-1, and is taxable to the individual at his ordinary income tax rate.
Of course my experience is from a few years ago, so, my understanding may be flawed through recent changes in the tax code.
Best to consult your personal tax advisor for specific details.
[ Edited by DaveT on Date 07/02/2003 ]