Posted by Brent_IL on October 06, 2003 at 19:44:01:
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Need help to avoid capital gain tax - Posted by johan
Posted by johan on October 06, 2003 at 19:04:28:
Hi!
I am in escrow on a house in San Francisco, CA. I have now being offered a much higher price for this single home from a nother buyer. How do I avoid paying taxes? I don’t want to do a 1031.
Re: Need help to avoid capital gain tax - Posted by E.Eka
Posted by E.Eka on October 08, 2003 at 09:18:21:
Oh ya, before I forget. You have to pay taxes. A section 1031 refers to like kind exchanges. Tax won’t be paid if you exchange a house with a house. It has to be like kind, and there can’t be any boot received. Boot is usually cash or other property that is not like kind. You’d have to recognize the boot received and subsequently report it on your return and pay tax on it.
E.Eka
Re: Need help to avoid capital gain tax - Posted by E.Eka
Posted by E.Eka on October 08, 2003 at 09:15:22:
Hey Eric,
Well this is the skinny. People often through the word capital around when talking about property. Capital gains and losses are the gains and losses from sales or exchanges of capital assets. Property used in ordinary trade or business is usually referred to as a section 1231 asset. It’s NOT capitalized, therefore not subject to capital gains or losses when it’s disposed of. A house may not be a capital asset, even though it’s depreciable because in your case it’s used in a person’s trade or business.
An example of that would be inventory. Inventory is not capitalized when acquired, and when it’s disposed of it’s treated as cost of goods sold. The thing is, you and others who flip properties are in the business of buying and selling homes. It’s your business. As a result, the property you dispose of is treated as inventory from a tax perspective and any gain attributed to that disposal (Sale) is treated as ordinary income in the general course of business. Therefore the gain or income is subject to tax at your marginal tax rate and not the capital gains tax rate. The gain/income realized and recognized on that transaction would not go to schedule d.
The 60 day time frame is immaterial because it would only address whether the gain/loss is short term or long term.
I think this answers your question. I usually charge $75/hour for this. HA HA!
As a little caveat, this information is for general use and at the time of submission was accurate to the tax code which may change without notice. This information was not intended as an advisory and I am in no way shape or form bounded by this.
Ebong
Re: Need help to avoid capital gain tax - Posted by phil fernandez
Posted by phil fernandez on October 06, 2003 at 20:30:45:
It sounds like you are going to flip the house quickly. In that case you won’t be able to do a 1031 nor will you have to worry about capital gains taxes. You are looking at your profits being taxed as ordinary income.
You will also not be able to spread the gain out for tax purposes because you are not holding the house as a rental property. As you can see you lose a lot of tax benefits by quickly flipping a property.
You might be able to limit the tax damage by using a corporation. By all means talk to your accountant for advice before making a move.