Hello Everyone - I applogize in advance if I posted this incorrectly as this is my first post. I was not able to find anything related to this subject in other posts so I am creating a new one.
I've gone ahead and purchased a property that was an estate sale. I was able to get it for $75K under the asking price. I used some of Deans tips and was able to explain why I thought the property was worth what I was offering. The sellers accpeted my offer and I am planning on closing Oct 23rd!
The question of Capital Gains tax is now coming up for me. I have done extensive research and understand that if I sell the property in less than one year I could be taxed up to 35% on the profits. If I wait past the one year then this will be significantly less but still I will have taxes to pay.
Does anyone know about Capital Gains tax or have any suggestions on it. The way I look at it is that if I am able to make a profit and move to the next I am ok with paying the taxes - I'm figuring it into "start up costs".
Any thoughts or talk on experiences in this area would be much appreciated
Thanks
Cailin
Cailin, you have the basics down. Short term capital gains are taxed like ordinary income which can be 28-35% depending on your other income. Long term capital gains are currently taxed at 15%. The tax is only on the profit you make, not based on property value. My philosophy is make the profit and pay the tax. You only have taxes due when you are making money, so it is good to owe taxes. Be sure you get good accounting advice to minimize the tax bite.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
boconnor said it great.
Keep in mind depending on how your taxes are set up your income may be fully taxed like regular income based upon the tax bracket you are currently in and how good your professional is.
Having a CPA as a part of your power team is an invaluable asset. They can advise you based upon the income you will make on property what route would be best for you to take. They may advise you to take some cash, some as payments over time or even to roll the money into other property so that you do not feel the blunt of the taxes.
If you don’t have a copy you should get one.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
Yes, please consult with your CPA. If you hold the investment property (not personal primary as that falls under a separate tax code) for a year or more, it is then property held for long term investment and it would qualify under IRC 1031, Tax Deferred Exchange. A tax deferred exchange is wherein investors holding investment property (relinquished property) for a year or more can sell their investment property as long as they roll their funds into another like-kind investment property (replacement property), ie. single family rental, multi-family, retail, commercial or industrial as long as your intent is to hold that property for long term. The replacement property has to be equal or greater in value, you have to obtain equal or great debt or offset the debt with cash and roll all equity and proceeds into the new property or you if you choose to retain a portion of the proceeds you would pay taxes on that amount.
Definitely consult with your CPA/tax advisor.