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Taxing situations...real estate

 
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Trex
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Joined: 22 Feb 2003
Posts: 27
Location: Tallahassee, FL

PostPosted: Mon Sep 08, 2003 2:09 am    Post subject: Taxing situations...real estate Reply with quote

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


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wanderer
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Joined: 26 Nov 2002
Posts: 363
Location: anytown, usa

PostPosted: Mon Sep 08, 2003 2:42 am    Post subject: Reply with quote

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).



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TRyan
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Joined: 17 Dec 2002
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PostPosted: Mon Sep 08, 2003 5:08 am    Post subject: Reply with quote

...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.



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Trex
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Joined: 22 Feb 2003
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Location: Tallahassee, FL

PostPosted: Mon Sep 08, 2003 6:35 am    Post subject: Reply with quote

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


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TRyan
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Joined: 17 Dec 2002
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PostPosted: Wed Sep 10, 2003 7:47 am    Post subject: Reply with quote

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



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Trex
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Joined: 22 Feb 2003
Posts: 27
Location: Tallahassee, FL

PostPosted: Wed Sep 10, 2003 7:52 am    Post subject: Reply with quote

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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