Best exit strategy

General Real Estate Investing
1

I bought a (preconstruction) second home, and want to know the best exit strategy taxwise. Renting is an option, lease w/ option to purchase is too. I thought about flipping, but I wanted some advice
from the smart people here on the tax consequences.

2

how long have you owed it? how much equity do have in it. what are you trying to accomplish?

3

I bought it 2 months ago, it is still not built. Currently have 46K equity, will be higher by the time it is built. (the builder keeps raising the prices) I originally bought it for a tax write off, now, I need to figure out the best exit strategy. I want to eventually own a property with cash flow (don’t we all…) this is a stepping stone, I may not break even if I rent it, but it is still better than not investing at all. One day, I will have cash flow from it. The loan amount is 184K, and I put 20K down, and have some expenses (flight,hotel, car rental) I also paid 7K lot premium, and about $2800 in upgrades plus another 2K in options. Bottom line, the loan is for 184K. Thanks for any advice!

4

Chatterweb,
I am not able to give tax advice you should consult with a good tax attorney since what I say is just a suggestion.
You will need an exit strategy so are you flipping or holding for the long term…??
If you are flipping you will pay a fair capital gains tax due to the 121 expemption rule which the 2 out of 5 yr rule on occupancy… something to consider.
How long can you have a negative cash flow and hold on to the property even with a better tax base…??
If you are unsure of the exit strategy it sounds from an investors standpoint that you probably wanted to flip it if that builder allowed investor speculation. Go to a good tax attorney or CPA and find out taxwise what would be the better option for you… and you can go from there.
I would be looking to line up some buyers now so do not have to take on the loan debt should you decide you want to opt out of this deal.

5

Thanks for the new reply, I had to reregister, different name, same situation.

I can hold the property for 28 months (savings account), I could rent it out, or do a l/o on it.

Thanks for your advice, I am a newbie, and it is appreciated.

I thought of just paying the taxes, and walking away with a profit.

The property will be done mid Sept-mid Oct…probably will sell for
250K+…I have been watching the houses that have sold, so I have an idea of the market price/time. It helps that I graduated from school for RE appraisal too. Of course, no one can really know what the market will bear.

If I rent it I will have + cash flow of at least 100.00 maybe 300.00…
I think an L/O would be better…if I can’t just quickturn it.

I just do not understand the tax stipulations…I have heard of so many different angles…

Any advice is appreciated!!

6

my understanding is that if you sell within 12 months of closing, you pay regular income tax. if you’re federal bracket is 30% and state is 5%, thats 35%.
however, what you could do income splitting. you form a C corp, dee the property to the C corp and when the Ccorp sells it, it recognizes the profit, not you.
if you’re house is in a state like nevada, you should register your C corp there and you will not pay state income tax[i think. this is not gospel, so please verify].
you can use the C corp’s lower tax brackets to pay less tax. i think
on the first 50k, its only 15% tax. a lot lower than the 35% if regular income.plus you can deduct legitimate biz expenses more easily than if you were an investor.

7

It seems easier to just hold the property and rent it for now. We can get a heloc on it to take out the equity…less trouble!

8

BUMP!