When Selling Property - Cap Gains
After buying a property in Jan and selling it in July you have to pay a short term cap gains tax, right? I am in CA. How exactly does that tax affect the bottom line. Where do I subtract it from, my net revenue or my profit.
What are the short term cap gains and regular cap gains taxes in CA?
Do I subtract it before I pay my equity investors?
Thanks guys.
[ Edited by farrisb on Date 03/01/2007 ]
Excellent questions, you need a very sharp accountant who can answer them promptly. The right one is worth his/her weight in platinum.
I did the same as you last year, without looking this is what I remember.
Yes, short term cap gains are in your future.
It affects your bottom line by lopping off whatever gain you made (excluding the cost of the land) by an amount of 15-25% (depends on your situation, my numbers might not be yours).
Subtract it from the profit.
IMO even the equity investors should share in the taxes, otherwise would you carry the entire tax burden?
I am not a CPA, nor would I even consider being one. My comments are ballpark at best.
Great Job on Sale . You may have to pay self employment tax
Thanks for your responses, what exactly is self employment tax, how much is it and when do you have to pay it?
The structure you used for organizing your equity investors will determine how you are taxed and whether to pay out before or after taxes are satisfied.
Did you form a partnership? An LLC? A C Corp? An S Corp, A Trust?
[addsig]
Self Employment tax is social security and medicare taxes. It is paid on any employment income that has not been included in a W-2, unless it is less than $400. The amount is 15.3% on 92.35% (or 14.12955%) of your self employment income up to $94,200, and 2.9% on 92.35% (or 2.67815%) of your self employment income over $92,400. It is declared on form 1040, schedule SE and must be paid four times a year unless the amount owed is less than $1000, in which case it is paid with your annual Federal income tax return.
Income from flipping houses- which is to say sales of anything other than investment property for rental purposes which has been held for over a year- that are held in your name or a pass through entity such as an LLC is considered regular income rather than capital gains, subject to Self Employment tax as well as income tax at whatever bracket your flipping income pushes you into.
I second the motion to hold your properties for over a year and rent them out- this would put your income from the sale of the property into the long term capital gains category, which could be taxed at as little as 0% if you sell next year and your regular income tax bracket is 10% or 15%.
Chris
So in reality if I flip a house and sell it in less than one year I am looking at paying around 30-35% in taxes, right?
What about short term cap gains, do I have to pay this also?
Thank you guys for your outstanding and thoughtful posts. [ Edited by farrisb on Date 04/06/2007 ]
My company owns a 1031 exchange in which we have several attorneys, if you would like I can give you there info and you can call and they may be able to direct you in the right direction.
Quote:
On 2007-03-23 18:43, Andrew_Bitler wrote:
I know of a website where you can plug in the figures for your exchange, just so you can play around with the mortgage boot and see what works best for you. Andrew,
There is no mortgage boot in a delayed (Starker) exchange.