Posted by bone on April 01, 1999 at 18:11:01:
I would certainly not qualify as an expert, but I did manage to find the current definition of a long term capital gain.
Effective January 1, 1998 (and for sales prior to May 7, 1997), long-term capital gain or loss treatment is available only when capital assests are held for more than 12 months {1(h)(5),amended by IRS-RRA 98, effective for tax years ending after December 31, 1997}.
Hope that this helps.
bone
Cap gain tax. - Posted by Todd
Posted by Todd on April 01, 1999 at 13:53:57:
Hello all,
I’m Getting ready to sale a rehab property that I’ve had for close to two years. I would like to avoid capital tax on this property. I’ve heard that if you hold a property for two years you can avoid or you can take a one time exemption. Any truth to either of these tactics?
Thanks for the help.
Re: Cap gain tax. - Posted by Dave T
Posted by Dave T on April 01, 1999 at 14:23:04:
The answer to your question depends on what you did with the property for the two years you owned it.
If the property was your principle residence, then when you sell it, the first $250K ($500 if married filing jointly) of your capital gains are exempt from taxation. Generally, you can only do this once every 24 months. The one-time exemption for over-55 tax payers has been repealed.
Otherwise,
a. If you took two years to rehab the property, then sold it, your profits are taxed as ordinary income. There is no tax deferral strategy available to you in this situation. Even if you rehabbed the property quicker, but did nothing else with it except put it on the market for sale, your profits are taxed as ordinary income.
b. If instead, you converted your rehabbed property to a rental income property, then you can do a 1031 exchange to defer your capital gains tax. Generally, capital gains tax can not be avoided when you sell your property, just deferred.
I am not a tax professional, and I am only giving my opinion and interpretation of the rules. Please see a qualified tax professional for advice specific to your situation.
Re: Cap gain tax. - Posted by Dave T
Posted by Dave T on April 01, 1999 at 14:23:04:
The answer to your question depends on what you did with the property for the two years you owned it.
If the property was your principle residence, then when you sell it, the first $250K ($500 if married filing jointly) of your capital gains are exempt from taxation. Generally, you can only do this once every 24 months. The one-time exemption for over-55 tax payers has been repealed.
Otherwise,
a. If you took two years to rehab the property, then sold it, your profits are taxed as ordinary income. There is no tax deferral strategy available to you in this situation. Even if you rehabbed the property quicker, but did nothing else with it except put it on the market for sale, your profits are taxed as ordinary income.
b. If instead, you converted your rehabbed property to a rental income property, then you can do a 1031 exchange to defer your capital gains tax. Generally, capital gains tax can not be avoided when you sell your property, just deferred.
I am not a tax professional, and I am only giving my opinion and interpretation of the rules. Please see a qualified tax professional for advice specific to your situation.
Re: Cap gain tax. - Posted by Redline
Posted by Redline on April 01, 1999 at 14:10:33:
The only ways to avoid capital gains taxes on RE is:
If you’ve owned for 5 years, and out of the 5 you LIVED in it for 2 years, you can exempt up to $250,000 single/filing separately. Or $500,000 married filing jointly. (Own 5 - live there 2 out of the five. This is the way I’ve read it… and I’ve read it several times!)
If it’s not owner occupied do a 1031 exchange. This is where you’ve got some time to trade up and buy another property. I’m sure someone ELSE will furnish these details as I’m not 100% sure of the fine print.
RL
Re: Cap gain tax. - Posted by Redline
Posted by Redline on April 01, 1999 at 14:10:33:
The only ways to avoid capital gains taxes on RE is:
If you’ve owned for 5 years, and out of the 5 you LIVED in it for 2 years, you can exempt up to $250,000 single/filing separately. Or $500,000 married filing jointly. (Own 5 - live there 2 out of the five. This is the way I’ve read it… and I’ve read it several times!)
If it’s not owner occupied do a 1031 exchange. This is where you’ve got some time to trade up and buy another property. I’m sure someone ELSE will furnish these details as I’m not 100% sure of the fine print.
RL
Re: Cap gain tax. - Posted by Ben
Posted by Ben on April 01, 1999 at 15:24:50:
Dave, I am no tax expert either but it seems to me
if one holds an investment property for more than one year, then sells it, the gain qualifies for a long term
capital gain rather than ordinary income. Can anyone else comment on this?
Re: Cap gain tax. - Posted by Ben
Posted by Ben on April 01, 1999 at 15:24:50:
Dave, I am no tax expert either but it seems to me
if one holds an investment property for more than one year, then sells it, the gain qualifies for a long term
capital gain rather than ordinary income. Can anyone else comment on this?
Re: Cap gain tax. - Posted by Bill Gatten
Posted by Bill Gatten on April 02, 1999 at 13:46:13:
If you’ve met the holding period requirement for a 1031 property, you can do a Like-Kind Tax Deferred Eschange; however, beware… you cannot “buy” another property: you must not “purchase” anything–you must trade, and you must not see or touch money until the exchange is complete. Also beware of the 180-Day Exchange Window–if you exceed it by four minutes, you owe the taxes. You can trade up or down-- if you trade down you owe partial taxes: if you trade up you don’t (all depends upon jargon stuff like “boot,” “up leg,” “down leg,” “pork rinds” and “hooters” or something).
For the best free advice, you might call – 1 (800) 767 1031.
Bill
Strictly speaking… - Posted by JHyre in Ohio
Posted by JHyre in Ohio on April 02, 1999 at 07:26:02:
if you purchased the property with the intention to rehab & sell (flip), resulting profit is taxable at ordinary rates. If you intended to buy and hold, then you were eligible to depreciate and sell at more favorable cap gains rates.
As a practical matter, if this is the ONLY property that you’ve done this with, you can probably get away with cap gains treatment.
John Hyre
Business vs Investment property - Posted by Dave T
Posted by Dave T on April 01, 1999 at 21:55:56:
I agree that investment property held for 12 months or more qualifies for preferred capital gains tax treatment. The question is whether a rehab property is considered investment property or business property. I am led to believe that the sale of business property is taxed under a different set of rules.
As I said in my first post, perhaps a tax professional will step in and clear the air on this question.