I'm buying a house for resale but they told me that the IRS put penalties. Is this true?

Question

My realtor told me i got to pay 18% of the resale new price, is that a fact?? that cuts your profit big time...

Answer 1

Yes, there are higher taxes to pay if you own a piece of property less than a year, or less than two years for owner-occupied properties. Call a tax advisor or CPA to get exact numbers for your tax situation.

Answer 2

You MAY have to pay a tax on the PROFIT from the sale of a house.

If you are selling your primary residence that you have lived in for 2 of the 5 years prior to the sale date you may be able to exclude some or all of the gain from taxes.

If you do not qualify for the exclusion you will probably have a capital gains tax on the gain on the sale. Different rates apply based on how long you owned the house. If it's less than one year the tax will be at your marginal rate. If you owned it more than one year it will be at the lower long term capital gains rate.

Consult with a qualified tax adviser -- preferably a tax attorney or CPA -- for guidance specific to your situation. If your Realtor said that you have to pay 18% on the total sale price, tell him to stop practicing tax law and stick with real estate sales -- he doesn't know what he's talking about. You may have a tax bite, but it won't be anywhere near that much.