OfflineMy CPA freaked me out today.
I started REI back in the fall of 09 with rehabbing a HUD and I am closing on it this April. I have also purchased another HUD and have up for sale/rent.
As I was telling my CPA my plans to flip at least 3-5 houses a year, he said there could be some major tax implications there and I could be looking at paying 25-40% taxes on the houses.
How do you rehabbers do your taxes to avoid this astronomical tax bracket?
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He's correct. Its called a flip tax.
Your one course of action is to have deductions.
Lots. Of. Deductions.
Yes tax laws can be tough which is why first and formost I strongly reccomend learning the "Rich Dad" way of doing things, if that term sounds familiar, it should because it's from the book/series Rich Dad Poor Dad and goes into greater detail about all of that.
Anyways with all the various tax codes and tax breaks it's a matter of how you file it and what you're using it as to help soften the blow of paying on them. For example using one of the homes as a "donation" of some sort or "Gift" for a freind of family member, there's ways to factor all that in. What you're doing is finding ways to balance out other taxes you might have to pay on other properties, this will continue on for as long as you're in the REI field and dealing with all different kinds of properties.
The tax code allows other ways to save as well such as Section 1031 which allows a seller to delay paying taxes on a piece of real estate that is sold for capital gain through an exchange for more expensive real estate.
As long as you keep trading up in value, you wont be taxed on the gains until you decide to liquidate.
As you get more and more into REI I suf=ggest you take some time and study more of the local and federal tax codes/laws because they can become yuour friend if you know all the in's and out's when filing.
John 14:6
Cam,
Its just about April 1; he doesn't have much time to study. Plus, his accountant was correct and should be answering his questions and telling him the truth no matter how painful the answer.
I could be wrong but the 1031 rule might not apply to a flip and since the 90 day flip law is no more, there isn't much wiggle room to not pay it unless you have other deductions to offset the income.
i say listen to your accountant if you're happy with them and work around anything he tells you
Hope it helps
Perhaps so, however a good accountant that understands all the in's and out's will be able to offer helpful suggestions to him to navigate through. There's always a legal way out so to speak it's a matter of coming across the right info and filing the right papers or simply ASKING for something to be done/applied.
Too many people sit back and let Uncle Sam stick the money needle in them and drain them dry when there's no need to. I'm not inferring he cheat or anything, simply expand his options and make sure his accountants know everything possible to help him.
John 14:6