Can someone tell me what dollar amount am I taxed on when I sell my rehab property? Would it be only the profit after holding costs, rehab costs, loan repayment, etc. or the difference between my buy price and sale price? Here’s a sample deal breakdown to help frame my question:
When I close on the property the difference between my buy price and sales price is ~70k. At the end of the year will I be taxed on 70k or 15k? If I am only taxed on the 15k do I have to attach closing statements, contractor invoices, loan statements, utility bills, etc. with my tax return?
You will be taxed on the difference between the sales price and the sum of the purchase price plus capital improvements. You will be able to deduct interest and taxes. You will not be able to deduct insurance, the $3k prurchase cost (closing costs? down payment?) or the sales costs.
If you have owned less than a year, this will be taxed as ordinary income in whatever tax bracket you are in. If you have owned it a year or more, it will be taxed as 20% capital gains.
Re,
I believe you can deduct all expenses on Sked E, as this is an investment. You do not attach receipts & bills to Sked E, but you need to keep them with your copy of return. If you own it longer than 12 months, I believe captal gains is now 15%. Talk to 2 tax guys. If they agree, you’re ok. If not, ask a 3d.
Good luck,
Ray
From the information you gave in your question, I see this as rehab-flip. There is no schedule E, instead all your income and expenses will be reported on Schedule C. The total of all your holding costs, acquisition costs, and cost of improvements are the cost of goods sold. The sale price minus the cost of goods sold, minus your selling costs, is your taxable profit which is reported on Schedule C and Schedule SE in the tax year of the sale.
Your net profit is ordinary income to your rehab-flip business regardless of your holding period.
A minor clarification on the threshhold between short term and long term holding periods. A holding period of one year or less is short term. A holding period greater than one year (one year and a day, or longer) is long term.
You have described the general rule for the deductibility of expenses for your primary residence or second home. The tax treatment for property held for investment use allows expenses such as hazard insurance, maintenace, PMI, supplies, HOA fees, and other operating expenses in addition to depreciation to be deducted against rental income. If the property is dealer realty, as in a rehab-flip, then all the costs of acquisition and improvement, holding the property, marketing, and selling the property are realized in the year of sale on Schedule C.
IN THE FUTURE, NOT TRYING TO PLACE JUDGEMENT I HOPE THAT YOU CAN FIND A REHAB-FLIP WITH MORE EQUITY IF YOU ARE GOING TH INVEST THAT MUCH IN REHABBING.
REASON BEING JUST WHAT IF IT DID NOT SELL FOR THE PRICE YOU WANTED. YOU COULD HAVE GOT LESS BACK. WITH DOING FLIPS I TRY AND RECOMMEND YOU MAKING A PROFIT OF DOUBLE THE COST YOU PUT INTO IT. HOPE THIS HELPS. WISH YOU THE BEST.