Hello everyone.
I am new in investing and needed alot of your help.
Example:
I bought 1 property for $100,000 and fix up little bit and sale it at $150,000 within one year.
Some one told me that I have to pay capital gain tax if I sell less than 1 year.
Other said that I don’t have to pay capital gain tax if I use that money ($150,000) to buy another property within that year.
Other said that I have to rent it out for 2 year or more and then sale it, so that way I don’t have to pay capital gain tax.
I don’t know which answer is correct.
Please help me.
Thank you ???
<<I bought 1 property for $100,000 and fix up little bit and sale it at $150,000 within one year.
Some one told me that I have to pay capital gain tax if I sell less than 1 year.>>
Correct…and they will be short-term capital gains taxed at your regular income tax rate. You can, however, subtract the costs of improvements and repairs.
<<Other said that I don’t have to pay capital gain tax if I use that money ($150,000) to buy another property within that year.>>
Incorrect.
<<Other said that I have to rent it out for 2 year or more and then sale it, so that way I don’t have to pay capital gain tax.…
Also incorrect. Not only will you have to pay capital gains but you will have to pay taxes on the recaptured depreciation (even if you didn’t take it!).
You can, however, take a capital gains exclusion if you LIVE in the property for two out five years…
When in doubt, don’t listen to me or what ‘others’ tell you, listen to the IRS or a qualified tax professional tells you (I think you’ll find that I am giving you the ‘straight skinny’)…
Keith
Keith gave you the right answers to your question but I like to add something…
IF your planning on getting into the business, even if its only 1 deal a yr, seek legal advice from a tax specialist and set up a corp to deal with taxes correctly on your rental properties and to protect your assets from lawsuits…
andrew
if you fix up a property and sell it, it might be termed as a business and you might be subject to reg. income tax.
definitely consult a good CPA.