CAPITAL GAINS TAX - Posted by joel

Posted by Bud Branstetter on April 13, 1999 at 13:14:48:

Ray,

It is not that I would offer any more or less and it may well be the cash offer in a multiple offer approach. The seller may well take the offer depending on his equity position. But as reality has to come in there are fewer of these in a sellers market. If I were the only one that was interested I may get the property. But the seller usually does not have enough equity to not get a good portion of it or he is able to market to homeowners who by definition, if they can get by the mess, are willing to pay more. If I can get it I’ll take it but I may go hungry waiting for a lot of these.

CAPITAL GAINS TAX - Posted by joel

Posted by joel on April 09, 1999 at 02:11:40:

These questions are for all of you RE Investors who focus mainly on Rehabs.

How much Capital Gains Tax does one need to pay when they buy, rehab and sell a property? Is it a % of the gross profit or a % of the net profit?

Also, can you write off the amount you spent in renovations for the property as a tax deduction?

Scenario:

Maximum Retail Value of Property … $100,000
subtract the following:
purchase costs … $3,000
rehab costs … $9,000
holding costs … $2,500
sales costs … $5,500
contingency factor … $2,000
profit … $15,000


Maximum Purchase Price … $63,000

Re: CAPITAL GAINS TAX - Posted by Bud Branstetter

Posted by Bud Branstetter on April 09, 1999 at 17:57:54:

Your question on capital gains infers short term gain. That rate is the same as your regular income tax rate.

You can avoid taxes completely if you utilize a Roth IRA to do the deal.

About the only thing I agree with in your example is the profit. Expense incurred to make income are deductable against the sales price. There should not be a need for $5500 sales cost. I would also not pay 63K cash to fund this deal. In sellers markets to be able to find these under every bush is not going to keep you in business. A homeowner is going to out bid you.

Re: CAPITAL GAINS TAX - Posted by Ray

Posted by Ray on April 09, 1999 at 23:51:10:

It looks like he is using a formula out of Kevin Meyer’s book, "Buy It, Fix It, Sell It, Profit!"
In fact, the figures are identicle except in the book (on page 60) the max retail was 90k leaving the max purchase price 53k.

Understanding that the figures in this example are somewhat bloated, what would you offer on a house such as this?

After reading Myer’s book, I was left with the thought: “It’s sounds good, but who in my market is going to take that kind of offer when owner occs. are willing to pay more?”

I am curious to know what kind of offer would you make for a cash deal and still make it work?

Ray