Capital Gains - Posted by Stephanie

Posted by Dave T on October 29, 2000 at 23:54:48:


“Thanks for the %'s - I will check with my accountant!”

I hope you are checking with a different accountant and not the one that give you the wrong advice in the first place.

Capital Gains - Posted by Stephanie

Posted by Stephanie on October 27, 2000 at 08:19:04:

I am just finishing up my first foreclosed rehab project and have buyers for it (yeah!!). They were going to L/O it for 1 year but now have decided to get financing and purchase it. I spoke briefly with my accountant when I thought it was going to be a L/O and she said that that was good because if I have owned it longer than 12 mo I will pay long term cap gains instead of short term. Does anyone have any idea how to figure what my capital gains will be and what is the diff ($$ wise) between short term and long term. I am also considering doing a 1031 exchange because then $0 will go to the IRS.

Any help on this subject would be greatly appreciated.

Re: Capital Gains - Posted by Dave T

Posted by Dave T on October 27, 2000 at 12:13:13:

I agree with Bud, but I am going to make a stronter statement. CAPITAL GAINS TAX TREATMENT DOES NOT APPLY.

It does not matter how long you hold the property, your intent all along for the rehab was to sell to a tenant/buyer. Since you never put the property to use as investment property, your entire profit on the sale is taxed as ordinary income in the year of sale.

Because you don’t have an investment property (under the IRS definition, you have inventory – often called dealer realty), your property does not qualify for 1031 exchange treatment.

By all means, get a new accountant.

Fire the accountant - Posted by Bud Branstetter

Posted by Bud Branstetter on October 27, 2000 at 11:19:51:


The tax rate on long term capital gain/over 1 year, is 20% if you are in the 28% bracket. If you sell under 1 year the short term tax bracket is 28%. The decision costs you 8% of the profit. The IRS may also look at the transaction not permitted if the intent was to sell. Did you advertise for rent or for sale? If you were doing this as your living, did not have a job, you would be a dealer and not able to do 1031 exchanges. The contract must specify it is going to be a 1031 exchange. You will need to get a hold of a facilitator before you do the contract.

Re: Fire the accountant - Posted by Stephanie

Posted by Stephanie on October 28, 2000 at 07:49:16:

Thanks for the %'s - I will check with my accountant!

Short term can be taxed as high as 39.6%! (NT) - Posted by David Krulac

Posted by David Krulac on October 27, 2000 at 14:45:12: