Posted by James on September 18, 2003 at 24:54:52:
Thanks Ron! One more easy question for you if you can answer it. Is the capital gains tax higher or extra tax, because that could be the only income I have, should I pay 20% on the money I made, and then income tax on the rest of the money I made. 80K-20%=64K and on that money the regular income tax? Thanks again!
Is this a good technique to sell for CA? - Posted by James
Posted by James on September 15, 2003 at 10:53:52:
Say you have a rental property, that you want to sell. You do 1031 exchange for another property, then sell in a few months the other one/the one you just got. The question is do you pay capital gain tax on the sale of the second property?
Thank you for your inputs.
Re: Is this a good technique to sell for CA? - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on September 16, 2003 at 01:34:49:
James-------------
What you are proposing to do is not proper. You can exchange only properties held for production of income, an investment, or use in a business. You cannot do an exchange with property that you intent to resell soon.
So you pay capital gains tax on the sale of the first property. Then, should you buy and resell soon a second property, you pay short-term capital gains on that property, if you have a gain, which is the same rate as ordinary income tax rate.
Good Investing***********Ron Starr*************
Answer… - Posted by randyOH
Posted by randyOH on September 15, 2003 at 12:02:14:
James,
The answer is yes, which means there is no reason to do the exchange in the first place. Right?
Randy
Re: Is this a good technique to sell for CA? - Posted by James
Posted by James on September 16, 2003 at 10:37:32:
Thank you Ron!
The property gains tax for that property that I held for 2+ years is it taxed rated as ordinary income?
Thanks again.
Re: Answer… - Posted by James
Posted by James on September 16, 2003 at 01:14:56:
I meanth the property has been held more than two years, and the investor has not lived in it. Sorry for not telling the whole “picture”.
Re: Is this a good technique to sell for CA? - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on September 16, 2003 at 15:38:37:
James–(CA)----------------------
Assuming it was an investment property, not a personal residence, you should be able to pay at long-term capital gains rate.
But I don’t understand why you would think of selling a property so soon after buying it. Does not make sense to me. Real estate is a long-term investment. Plan to hold for 30 years or so.
Good InvestingRon Starr
Re: Is this a good technique to sell for CA? - Posted by James
Posted by James on September 16, 2003 at 18:10:56:
It is a 4 unit building. 1964 Built, plumbing problems every other month. I may get some positive cash flow now may be $100-200, but the plumbing issues will eat it up probably. I would like to pull the money and buy a rental building with a positive cash flow. One of the owners looks like don’t have the brains to fix the plumbing issue in her unit. I have ARM interest loan, which will likely move upward after 3 years. And also I will need some cash to do cash deals. I am unemployed right now and the banks do not want to do “home equity line of credit” with me. I don’t know how to do any deals unconvetially here in LA. Also buying and reselling quick brings cash right away. This property is worth around 300K, bought for less than 200K. The other thing here anybody can sue you just for “sneezing”:))) improperly.
Re: Is this a good technique to sell for CA? - Posted by James
Posted by James on September 16, 2003 at 17:30:53:
It is a 4 unit building. 1964 Built, plumbing problems every other month. I may get some positive cash flow now may be $100-200, but the plumbing issues will eat it up probably. I would like to pull the money and buy a rental building with a positive cash flow. One of the owners looks like don’t have the brains to fix the plumbing issue in her unit. I have ARM interest loan, which will likely move upward after 3 years. And also I will need some cash to do cash deals. I am unemployed right now and the banks do not want to do “home equity line of credit” with me. I don’t know how to do any deals unconvetially here in LA. Also buying and reselling quick brings cash right away. This property is worth around 300K, bought for less than 200K. The other thing here anybody can sue you just for “sneezing”:))) improperly.
Re: Is this a good technique to sell for CA? - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on September 16, 2003 at 18:52:20:
James–(CA)---------------
Ok, your reason to sell in a short time after purchasing I see as very legitimate. You have financial difficulties and are selling to get out of them.
I think you are right, doing quick turn over deals may be difficult in So CA. However, that is probably what you have to do to get to the point to be able to afford properties to keep for the long term.
You probably should try to get education from Bruce Norris in Riverside. He buys gobs of great deals in So CA. Take classes when he teaches, try to borrow his written material or even–gasp–lay out good money to buy some.
Good InvestingRon Starr*******
Re: Is this a good technique to sell for CA? - Posted by James
Posted by James on September 17, 2003 at 13:29:10:
Given that, I have rented the condo for about two years the law requires that i live in the property for two out of 5 years in order not to pay capital gains tax. Say I do 1031 for another property, what happens if I resell it quickly? Do I owe cap. gains tax? Say the first one made $80K appreciation, I exchanged $300K first property for another prop. worth $300K. Then I sell the second one for $300K do I pay in this case the $80K I made on the first?
Thanks for the help!
Re: I’m glad you understood that… - Posted by Jim V
Posted by Jim V on September 17, 2003 at 24:05:46:
… because I got lost somewhere when the discussion was about who was responsible for plumbing issues.
Sooner or later, I hope to understand much more.
On a different topic, LA Learning Annex needs a foreclosure speaker. Sure you don’t want to reconsider? I can forward you contact info.
Re: Is this a good technique to sell for CA? - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on September 17, 2003 at 16:48:44:
James–(CA)---------------
It sounds to me as though you are mixing together two different sets of laws related to two different situations. As you say: “…the law requires that i live in the property for two out of 5 years in order not to pay capital gains tax.” Notice those words “live in.” That means your own residence, not a rental property. The law does not apply to rental property.
You say: “Given that, I have rented the condo for about two years…” so this is an income property. You can do a 1031 exchange out of that property into another investment property. One that you intend to keep for a long time as an investment, for the production of income, or for use in a business. Not one that you intend to resell soon.
And yes, if you sell the replacement property, all of the gain from the relinquished property that you have DEFERRED will be taxable. Plus any gain you have on the replacement property.
Good InvestingRon Starr******