Taxing situations...real estate

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Trex
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Location: Tallahassee, FL

Taxing situations...real estate

Post by Trex » Mon Sep 08, 2003 2:09 am

Hello all,

Curious about/can't remember:

Let's say you buy a property for a bargain. 100k sales price, needs 10k of work, can sell for 125. Is it OK to buy, make 10k of repairs, rent out for 1 year, deduct the cost of repairs, and sell the next year. This would clear out those repair monies and only expose one to cap. gains taxes on the proceeds (unless he/she exchanged).

Does anyone have a problem with this? Kind of woke up to the idea this morning....

Trex

wanderer
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Post by wanderer » Mon Sep 08, 2003 2:42 am

if those are repairs and maintenance, no problem expensing.

if they add to the utility - quantity, quality or life - of the asset, you have to capitalize and depreciate (so you would recapture some of the depreciation). Your goal of getting LTCG treatment is admirable. It is something we are considering with our newly contemplated owner-builder activities (saves $13k in one year).
regards,

wanderer

The field has eyes / the wood has ears / I will see / be silent and hear

TRyan
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Post by TRyan » Mon Sep 08, 2003 5:08 am

...also no need to "rent out" to get the repair expenses deducted.

I believe you could fix and flip and take the repairs with out renting. Just add to the cost basis of the property.
"Buy Low Sell High"

Trex
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Location: Tallahassee, FL

Post by Trex » Mon Sep 08, 2003 6:35 am

Hey Tryan,

Obviously this will be my first flip, but I thought you could only expense repair items on an investment property held for a period of time. Am I just wrong about that?

Just add to the cost basis of the property.

Could you explain that please? Do you do your own taxes?

Thanks-
Trex

TRyan
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Post by TRyan » Wed Sep 10, 2003 7:47 am

Trex,

I am not qualified to do taxes ... I 've used a CPA for years. So I called my accountant, here's the deal:

1. No requirement to rent the property to take the repair costs as a deduction. A schedule D is used (rather than schedule E).

2. A fix n' flip held for less than one year will be taxed as a short term capitol gain (taxed as ordinary income). Held more than a year, taxed as a long term gain (20%).

3. If the fix n'flip begins to look like a bussiness the IRS will be looking for self employment tax in addition to short/long term taxes. Doing 1-2 flips per year as a "hobby" will not trigger self employed taxes.

Hope this helps, TR
"Buy Low Sell High"

Trex
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Posts: 27
Joined: Sat Feb 22, 2003 1:16 am
Location: Tallahassee, FL

Post by Trex » Wed Sep 10, 2003 7:52 am

Hi TRyan,

Thank you so much for doing that. I was just going to post a poll about when it's time to hire an accountant. :oops:Maybe it's time...

Thanks again-

Trex

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