Posted by David Krulac on December 09, 2000 at 07:47:55:
and that was not my intention. My intent was to say that there is NO number of transactions in the IRC and that even one property transaction can be a dealer property. You are absolutely correct that when held less than one year ALL transactions are taxed at ordinary income levels up to 39.6%!
Reducing Capital Gain Taxes When Flipping Houses - Posted by Vince
Posted by Vince on December 07, 2000 at 10:45:51:
Hi, I’m a novice at r.e. investing and purchased Carlton Sheets course 18 months ago and started buying properties and holding them for long term growth, so I’ve never sold a house before. However, 5 months ago I purchased Ron LaGrand’s courses and learned about FLIPPING HOUSES WHOLESALE FAST. The good news is I caught on to the concept quick and have flipped 4 houses in 4 months making around $20,000.00. The bad news came when my brother told me that I’m going to be taxed like crazy on this money come tax time due to capital gain taxes.
To cut to the chase, I would appreciate if some of you more experienced investors, especially those who flip a lot of houses could give me some tips on how to make the tax hit a little easier if there are any ways at all.
I herd some things about self-directed IRA’s but not in detail or where to find more information about this. If anyone has any knowledge about this, it would be greatly appreciated and I thank you in advance for your advise.
Re: Help - Posted by ajoseph
Posted by ajoseph on December 10, 2000 at 09:33:06:
What advise do you have for the beginner? What courses do you recommend? Does it require a lot of money to start? I live in Silicon Valley and the home prices are very high and demand is even higher for these homes. Is this a good market to work in?
Re: Reducing Capital Gain - Posted by dewCO
Posted by dewCO on December 07, 2000 at 22:52:01:
Your potential good news is that you aren’t a dealer until you do 5 or more in a year. So far so good for you. The veterans here set up a C Corp. for their flips to get the best tax advantages if they go to the dealer status.
another question for the experts - Posted by Kevin Subbert
Posted by Kevin Subbert on December 07, 2000 at 19:28:32:
If you flip properties within your corporation what taxes do you pay? In other words, is a corporation subject to capitol gains tax or would you just pay corporate taxes on your profit? Or both? Yech!
Kevin Subbert
Reducing Capital Gain Taxes When Flipping Houses - Posted by Dave T
Posted by Dave T on December 07, 2000 at 15:53:31:
It’s even worse than you brother told you, because all your “flip” profit is taxed as ORDINARY INCOME. Capital gains tax treatment does not apply here.
This means that if you are in the 28% tax bracket, your profit is taxed at 28% – not the 20% capital gains tax rate.
While you may be able to do deals inside your IRA, the profits are tax free as long as they stay deposited in the IRA. I am not clear on this point, but I believe you may be taxed at ordinary rates and may be subnect to early withdrawal penalties on any money you withdraw from the IRA. Consult your tax advisor for details.
Reducing Capital Gain Taxes Flipping Houses - Posted by Houserookie
Posted by Houserookie on December 07, 2000 at 14:27:22:
More info on self direct IRA at midohio.com and pensco.com
A self directed IRA could differ or avoid tax on profit . If you could flip at $1-$2000 per year out of pocket, using your ROTH IRA is the key.
With a roth IRA, you are taxed up front, but all profit made is tax free. With a regular IRA, your initial contribution is taxed deductible, but profit is taxed at withdrawal.
I would seriously consider setting up a Roth IRA. EAch time you do a nomoney down or little money down, use the funds in there. That way all profit is tax free.
Houserookie
Re: Reducing Capital Gain - Posted by Dave T
Posted by Dave T on December 08, 2000 at 17:05:06:
Please post your authority for making this claim.
The courts have traditionally used several tests in combination to resolve a dealer-vs-investor issue. The number and frequency of sales is only one of NINE tests in determing the intent of the taxpayer to hold the property principally for resale to a customer. None of the individual tests is controlling for deciding the issue.
A taxpayer who does only one flip in a year could still pass several of the “dealer” determination tests, and, his transaction would receive dealer treatment under the IRS rules of reporting and taxing income.
If you have a recent authority that contradicts this position, please post it.
Re: another question for the experts - Posted by Dave T
Posted by Dave T on December 08, 2000 at 16:51:52:
The flip profit is ordinary income to the corporation, taxed at the corporation’s corporate tax rate.
Pay all the tax you can this year… - Posted by leslie
Posted by leslie on December 09, 2000 at 24:50:20:
shoot for about 40 or 50 thousand in taxes. Next year hire somebody to save you half that.
Just keep making big money as fast as you can. The issue of tax problems will diminish.
Dealers can still make a very good living.
Good luck.
Leslie
Set Up A Roth IRA & Trade Within (nt) - Posted by WayneMD
Posted by WayneMD on December 08, 2000 at 06:40:47:
!
Re: Reducing Capital Gain Taxes When Flipping - Posted by Geoffrey Faivre-Malloy
Posted by Geoffrey Faivre-Malloy on December 07, 2000 at 18:06:02:
I thought that your flip profit was taxed as ordinary income only if you were considered a dealer. Ack…So much to learn!
You are SO right… - Posted by David Krulac
Posted by David Krulac on December 09, 2000 at 09:39:01:
the dealer status is a compl;icated determination. A “c” corp does NOT avert dealer status, as the “c” corp could be declared a dealer. It WOULD prevent other activities from being tainted as dealer.
Re: Set Up A Roth IRA & Trade Within (nt) - Posted by Houserookie
Posted by Houserookie on December 08, 2000 at 07:47:57:
I could be wrong, but using IRA to buy, sell, or flip also offers privacy and shields from judgements/creditors.
Properties are administered by trustee, and assets
cannot be touched by anyone. Even during BK.
Perhaps someone here can enlighten on this topic.
Houserookie
Guess what? You are a “dealer” when… - Posted by Dave T
Posted by Dave T on December 08, 2000 at 16:13:07:
you complete that first flip.
In determining whether a person is a “dealer” to any property (as opposed to an investor), the IRS analyzes the facts and circumstances of each situation. The question is decided on a property-by-property basis. All profit from dealer activity is taxed as ordinary income, no matter what the holding period of the property. All profits are fully taxed in the year of sale.
Consult a competent tax advisor for specific guidance.
If you’re a dealer… - Posted by David Krulac
Posted by David Krulac on December 07, 2000 at 20:02:27:
then even long term capital gains (property owned longer than 1 year) is taxed at ordinary rates up to 39.6%
If you are not a dealer all flipping, held less than a year is taxed at ordinary rates up to 39.6%
Re: If you’re a dealer… - Posted by Dave T
Posted by Dave T on December 08, 2000 at 16:20:04:
I feel that your post is somewhat misleading. You imply that you can be a “dealer” to property held less than one year and still enjoy capital gains tax treatment.
This is not the case. All profit from dealer activity is taxed as ordinary income in the year of sale.
And IF you are a dealer… - Posted by David Krulac
Posted by David Krulac on December 09, 2000 at 07:55:07:
property owned LONGER than one year is still taxed at ordinary rates up to 39.6%.
Additionally dealers can NOT exchange (Section 1031) and can NOT use favorable installment sales treatment.