Posted by JPiper on May 30, 2000 at 23:05:33:
I’d feel like I was throwing the dice by renting out for a year…let alone 6 months. Six months hold to do a 1031 would be considered VERY, VERY aggressive.
I hear two years is a good period to rent a property for, and is supported by a Private Letter Ruling.
JPiper
Taxes??? - Posted by Brett
Posted by Brett on May 30, 2000 at 07:30:40:
How much will I owe the IRS and how will this affect my investing? What are the best ways to avoid unnecessary taxes? I am planning on doing some fixer uppers and maybe get a rental or two in the next couple years. I am mainly concerned about next tax season. I bought a house for $14,000 in Feb 98. I fixed it up and lived in it for about a year moved out in March 99 and I have it under contract to sell right now for 67,900. So will I have to mail them a $10,000 check or what? Can I go ahead and reinvest my profit or do I need to save it for taxes? What kind of deductions can I make? Thanks very very much for your help. -Brett
Re: Taxes??? - Posted by Bud Branstetter
Posted by Bud Branstetter on May 30, 2000 at 22:54:39:
Since you did live in it it may be possible to prorate and exclude mart of the gain. If you had to move because of your job you may excude all of it. The way you send them that check is by doing estimated taxes and pay quarterly when you make the money. Most anything you did to make income is deductable but see the accountant for specifics. You also need to learn about how to do that fixer upper in a Roth IRA so that you avoid taxes. Start reading and learning.
Run, don’t walk to the nearest 1031 exchange expert - Posted by Glenn-OH
Posted by Glenn-OH on May 30, 2000 at 16:09:10:
If you have not already messed up with the current contract, you may be able to structure a 1031 exchange and defer taxes on all of the gain, while getting into a better ownership situation.
Glenn
Re: Taxes??? - Posted by Dave T
Posted by Dave T on May 30, 2000 at 10:48:07:
Consult a tax professional for guidance as it relates to your specific circumstances.
In general, since you did not live in the property two years, your profit is ordinary income and taxed at your marginal tax rate. If you are in the 28% bracket, then you should reserve 28% of your profit for taxes. Your tax professional can help you compute and file your quarterly estimated tax returns so you can avoid a penalty for underpayment on April 15.
There are some specific hardship circumstances that may permit you to use the capital gains exclusion on your primary residence even though you fail to meet the 2 year occupancy requirement. Consult your tax professional to see if you qualify.
In the future, if you plan to buy fixers, live in them, then sell them, you should occupy the house for two years. This way you meet the two year ownership and occupancy requirement to have all your sale profit TAX FREE.
Thanks ! Where to find Roth? - Posted by Brett
Posted by Brett on May 31, 2000 at 24:56:22:
Thanks to everyone on all the great advice. This was my first property and I’m very excited to see it finalized. Do you know where I can find more info on investing with Roth?
Re: Run, don’t walk to the nearest 1031 exchange expert - Posted by JPiper
Posted by JPiper on May 30, 2000 at 16:21:10:
This property doesn’t appear to qualify for 1031 echange treatment. Property must be an investment property, and in this case it doesn’t appear it was ever rented…it was owner occupied.
JPiper
Re: You can get slaughtered by tax people who don’t understand real estate - Posted by Lori Samson
Posted by Lori Samson on May 30, 2000 at 13:14:52:
Please take my advice on this one issue!!! I almost paid 15k one year to a tax person who didn’t have real estate knowledge and worked with a few landlords and thought that made him qualified. I got some expert advice that was rather expensive and then only paid 1500. in taxes. Two years in a roll I had different CPA’s prepare our taxes and they both did it wrong! Pay for expert advice. Find out if they themselves own real estate! If they don’t run!!! You will be safer to pay now in expert advice then pay way too much in taxes by an ammiture. Lori
Re: Thanks ! Where to find Roth? - Posted by chris
Posted by chris on May 31, 2000 at 04:36:16:
Brett-
Check out the free articles on self-directed IRAs at CREOnline. I believe they even have a book on this topic for sale. The links are on the left of the page. Mid-Ohio can also provide you with more information. They have a banner at the top of the page to get to their site. Contact them to get an information packet sent to you.
-Chris
Re: Run, don’t walk to the nearest 1031 exchange expert - Posted by t jent
Posted by t jent on May 30, 2000 at 22:45:30:
To qualify for 1031 Exchange, rent the property out for a while, then sell it. It’s my understanding that although the IRS laws require the property to be held for investment to qualify, they do not state a minimum time period and their is no definitive legal answer to that question. I figure about 6 months should suffice before selling to avoid capital gains. That much seems “reasonable” as lawyers say. That’s what I’ve done, though I have never been audited.
Also, I heartily agree with suggestion to find a tax person VERY knowledgeable of RE. It’s worth paying for. If you skimp on your tax advisor, you’ll end up paying whatever you saved - and a lot more - to the government.
Re: You can get slaughtered by tax people who don’t understand real estate - Posted by Dave T
Posted by Dave T on May 30, 2000 at 18:33:30:
The best defense against incompetent tax advice is to know as much about the tax arena as possible insofar as your tax return is concerned. You don’t necessarily need to know the fine intricacies of the tax code, but you do need to know enough to know when advice is off track.
Incidentally, I hope you filed amended tax returns to recoup the overpayment on your tax returns.
While the long term gains period is more than 1 year, it would seem that the IRS would not look favorable on an exchange less than that! (NT) - Posted by David
Posted by David on May 31, 2000 at 07:46:58:
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Re: Run, don’t walk to the nearest 1031 exchange expert - Posted by chris
Posted by chris on May 31, 2000 at 04:29:01:
http://www.apiexchange.com/techinfo/11.htm has some info on the holding period if you are interested including the private letter ruling Mr. Piper refers to.
-Chris