Let’s assume I buy a tax deed for $30K and it’s market value is $80K. I need to repair the house for $20K to sell it so I make $30K.
Since I am taxed at 40% (example) my profit is only $18K. How do I avoid being taxed too much on the $18K?
First, capitol gains tax rates only apply to investments held for at least 1 year + 1 day. Second, if you bought a property specifically to flip, it is not an investment property and any profit should be taxed at your nominal rate. Third, assuming it is an investment property, apart from claiming all legitimate deductions, the only way to minimize the tax bite is 1031 exchange.
jmd_forest
Buy and hold
Cash(flow) is king
Your tax rate is about right, since flips are regular income and subject to self-employment tax. So you get to keep $18 of the $30 profit.
Of couse, with a 1031 you get to defer the taxes… but you don’t get to keep the $30k, either.
If you keep the cash, you gotta pay tax on it.
Keep up with all your other “non-repair” expenses: mileage (a biggie), cell phone, advertising, taxes, insurance, printing business cards, commissions. Every expense related to the property is deductible to lower the taxable income.