Capital Gains Taxes - Posted by Terry

Real Estate Investing
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Posted by Jimmy on April 28, 2006 at 07:35:56:

taxes are an expense of success.

Is this an investment activity for you, or is it a business? Do you have another job? Do you hold any properties for rentals? Do you flip every property you acquire?

If this is your biz, and you buy, rehab and sell every property, you are, or will soon be, a dealer. It’s not a dirty word. It just means you are in an active business, and you are taxed as such. just like a lawyer or accountant or any one else. You don’t get to depreciate your properties, and you don’t get capital gain and loss treatment.

I sell plenty of properties, but I retain a lot more than I sell. My gross rents have increased steadily over the past 6 years, and will continue to do so. Even though I will sell 5-6 properties this year, and 5-6 next year, and 5 last year, it will be difficult for the IRS to classify me as a dealer. Rents are still the main focus of my activities, the properties I have sold were held as rentals for more than a year (some 3-4 years).

The determination of dealer v. investor status is purely factual, and all the facts and circumstances are considered.

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Capital Gains Taxes - Posted by Terry

Posted by Terry on April 27, 2006 at 12:19:26:

For all you property flippers out there, how do you deal with capital gains taxes? Don’t they eat you alive when you sell the property after only owning it for so little time?

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Re: Capital Gains Taxes - Posted by Innovator

Posted by Innovator on April 29, 2006 at 04:59:26:

I’ve said it before, just be sure you set some of your profit aside so at tax time you aren’t caught with your pants down!

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Re: Capital Gains Taxes - Posted by Peter_MD

Posted by Peter_MD on April 28, 2006 at 09:40:43:

Terry:

Dealmaker and Jimmy are absolutely on point.

Make your money (just like any other business), and pay your taxes (just like any other business).

Then do it again … many times.

As Ron LeGrand once said, ( … in part) “I’m not worrying about paying taxes on money I make this year since I will be making more money next year”.

Just pay the taxes and be done with it.

After deducting ordinary, necessary, and reasonable business expenses, you pay taxes on the gain (or profit) as anyone else.

Now … go out there and do some deals and don’t worry about “getting eaten alive” with taxes.

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Re: Capital Gains Taxes - Posted by speednxs

Posted by speednxs on April 27, 2006 at 18:34:53:

Yes, this is a problem with flipping properties. Actually you don’t have long term capital gains (15% rate, holding rental property over one year), you have earned income (upto 35% rate). Even worse, the IRS could classify you as a dealer and force you to pay self employment Social Security (FICA, 13% both sides) tax on this earned income. Oh, ya in CAlifornia you pay another 9.3% earned income (even if it is a long term capital gain). Work hard, the government is depending on you!

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Re: Capital Gains Taxes - Posted by Terry

Posted by Terry on April 28, 2006 at 10:40:33:

I appreciate everyone’s comments. It’s true just get out there make money, and then make more next time.

I guess my biggest fear is that my first rental/minor rehab property profit margin will not be as big as later deals.

I do appreciate the comments tho :slight_smile:

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Re: Capital Gains Taxes - Posted by dealmaker

Posted by dealmaker on April 27, 2006 at 22:16:40:

Nope, not eating me up. If the government is getting theirs, TRUST ME, I definitely GOT MINE.

Paying taxes is a sign you’re making money at this. The poor suckers who post about the great TAX LOSSES they have are delusional. You get TAX LOSSES when you have REAL LOSSES.

And please don’t flame me about the “paper losses”. I’ve been doing this for about 30 years. Give me income every time. I’ll pay the taxes on it.

dealmaker