I am just finishing up my rehab house that i bought for $9,000. I am going to have about $17,000 into the house, all on credit cards. I am hoping to sell the house for about a $20,000 profit. After taxes i want to pocket about 13-14k. Questin is, i am hoping to get $40,000 for the house. I will then immediatly pay the 17k on my credit cards. Do i then pay the taxes on the 20,000 profit? Or are they going to make me try and pay on the 40k that i sold it for?
Sorry, I am not understanding you. Did you put $17k into rehab and pay $9k, or was your total investment $17, $9k purchase and $8k rehab?
Not meaning to comment on you; but I see the phrase “hope to…” all over these postings and it brings to mind my favorite phrase from the CEO of Ethan Allen (my former employer)–“hoping is not a plan.” Just words, but sometimes the terminology reflects alot about us.
That said, what are you listing the home for and what are the comps?
BTW, you will pay taxes on all profits. Interest on a mortgage, if you have one, is deductible; interest on your credit cards is not.
Good luck, here’s to selling it profitably
Bigger question is where and the heck do you buy a house for 9K? Where are you located?
yes, i have a total of 17000 into the house after i paid 9k and 8k into it. I will be able to get 40k out of it, but it just depends on how long i want to hold onto it. Comps in the area are in the 45-65 range. Only thing is, i dont have a garage, but i have been through some of the houses recently sold and mine will be alot nicer when its all said and done. Im going to try and sell it myself for a few weeks before listing with a realtor. I dont have a mortgage cuz i have all 17k on my CC at 3% interest until March. this gives me time to get the house done and sold in that time…if for some reason i cannot get it sold, i will refi. and use it as a rental. I will be able to generate 350-400 profit off this house…i should keep it and use it as a rental, but im greedy and want the 20k asap.
Gordo, i bought the house in Sioux City, IA…its not uncommon to get a rehaber for 20k-25k around here, but 9k is unheard of in my book. I just looked in the paper one morning, called on it, they were asking 12k for it, i offered 9k and they said ok. Like i said, i will have 17k into it, and it will appraise at about 55-60k
I had a hunch it was in the Midwest. I’m in Appleton, WI up in the NE part of the state. 25 minutes south of Green Bay. Houses like that are around these parts as well but not for 9K. Are you doing the rehab yourself? How long did it take you to turn that house?
yes, i do the rehabs myself…i am hiring some of the plumbing and would hire out electrical if i needed elec. done, other than replacing an old fixture or something like that. I bought the house at the end of June and should have it done in 2 weeks or so. I only spend about 10 hours a week on it, unless i can get there on a Saturday or Sunday. We had a couple vacations in there and now with Football here, i dont do the weekends. I guess all in all, i could easily had it done in 3-4 weeks if i wanted to push at it, but im not in a real big hurry.
If your sale price is $40K and your cost basis is $17K, you have a $23K taxable profit for your federal and state income taxes.
Is there a way to reduce the profit reported by billing yourself for hours worked and pay standard income tax on a portion rather then Capital Gains? Do you need a company in place to do so?
Yes, i have that question too about my labor. Heres how mine is breaking down
14,399 for house and supplies
$1,700 for Carpet
$360.00 for Attorney fee
$423 for taxes paid
$50.00 for water
$60 for gas/electric
$350 for payments made toward Credit Card Payments (The house and supplies on the CC)
$300 for Plumber
-$900 back at closing
$4,575 for my labor (183 hrs at $25/hr)
Total $21,317 invested
Sell for $40,000
Is this correct? Do i need to add anything or take anything out of this? Can i bump my labor up to $30 -$40 per hour? I havent sold the house yet, but realtor said i will get $40,000 or more for it. My questions are they payments that i make toward my purchases while im holding the house. If it doesnt sell in the next month or so, it might be not be till spring that i sell it as the market is slow during the winter.
You pay tax on the profit not the entire sales prics. You are taxed on the net to your pocket.
right, but is my labor part of the profit? I didnt pay myself, but do i include it into the costs of redoing the house?
If you list your labor as a cost in the house, then you will have to claim it as ordinary income on your taxes. The IRS will look for that $4700 as income when it sees that the “project” paid you $4700 for labor. I think it is a wash.
Think you are a little under on your costs. Yes, you do need to deduct your carrying costs as well as closing. On the carrying costs; do your best to get as close to all your true costs as possible–you want to know what each month you hold means $$$wise. That way you can evaluate whether taking a lower offer will actually make you more money than holding on for a bigger one. Remember, if you are flipping you have closing costs on both ends; when you buy and when you sell. I round it to 5%, that’s usually high unless you have commissions. You’ll need some insurance in there as well.
Good luck, here’s to selling quickly!
Meant to say, even if you didn’t have more closing costs on this end, (since you put it on cc); remember you will on the other end. May also have a commission to the buyers rep. Just keep it all in mind.
Good luck. B-
why would i have closing costs when im selling? If they want me to pay the 3% or whatever, i will be tacking that onto their offer. Also only having $17k, into it on CC, im only paying about $110 per month plus $70 per month in taxes, and $50 for Utilities. Roughly 225 per month for holding it. The plan right now is listing it at $48,500, getting and selling it for $43-$45, pay the commisions and I take 40k, pay the investment off, pay my taxes and pocket about 15-16k. I think i have the price low enough to get some offers pretty quick.
There are almost always closing costs for both parties wheather you are buying or selling. It is usually higher for the buyer since they have costs associated with the loan, but the seller still has fees with the title company and such.
I have a few questions on this topic. Is it true that you can only claim up to 25k in repairs for houses you sale on your taxes? if so, is this for each house, or is it total per year?
Where did you get the $25K figure? Have you looked at the IRS website?
I think you may be confusing a couple of topics…
(BTW - the answer is “No, it is not true that you can only claim up to 25k in repairs for houses you sell on your taxes…” - some people spend hundreds of thousands on a single rehab.)
If I am not mistaken, I believe I read it in a post on one of the Legal Forums. Thanks for the response. 25k sounded pretty low. I was hoping that it wasn’t the case.
Your labor is a contribution to the project. You are not permitted to take a deduction for your own labor. That’s why they call it “sweat equity”.
If you are permitted to take an expense for your labor against your rehab profit, then you show the same cost as ordinary income on your personal 1040, Schedule C. Not only will you pay ordinary income taxes on your rehab labor, but you will also have to pay payroll taxes too. The payroll taxes are 15.3% on top of your ordinary income taxes.
Paying yourself for your own labor on your project will cost you much more in income taxes in the long run, than if you just contribute your labor free of charge the way the IRS tells you to.