I'm flipping a house, is there any way to reduce Capital Gains tax?

Question

I'm flipping a house. I own a primary rresidence. I stand to make 60K on the sale, not including repairs, settlements, etc. Can I deduct repairs from the profit of the house? Is there any way to reduce the capital gains tax?

Answer 1

Your gain will be the net sales proceeds minus your adjusted basis. You get your basis by adding the purchase price and non-prepaid settlement costs and your remodeling costs. The difference is your taxable gain.

The ONLY way to reduce the tax is to hang on to the property for over 1 full year. If you do that, it will be taxed as a long-term capital gain. The tax rate in long-term CG is normally 15% unless your marginal rate is 15% or less, in which case it would be 5%.

Someone suggested a Section 1031 exchange. That will NOT reduce the gain, only defer it. Basically you'd exchange your flipper for another home. The tax on the gain on that would be deferred until you sold the second one, but would be payable at that time. Since you probably want the $$$ in your pocket now, that probably won't work for you.

Answer 2

1. You are flipping and if you are doing it correctly you never own the real estate. 2. All your deals will be short term deals. Nothing where you hold property for income purposes for more than 12 months. Capital gains will not apply. You are likely to be classified as a dealer in terms of the IRS code so the property if you did own them are inventory. 3. You can write off the normal business expenses (mileage, materials, etc). Nothing that special so pretty easy to figure out. Flipping is like a job. You make money when you complete a deal and then you start all over again when you do your next deal. Ordinary income closer to commissions than anything else. Good income but nothing special in terms of tax deductions.

Answer 3

You can use section 1031 like kind exchange only if it is an investment or business property.
Your cost basis of the house is what you original cost plus cost of improvements (expenses that can be capitalized). You can't add cost of repairs to your cost basis. Then from profit you can deduct expenses related to the sale.
If you hold the property for one year, you have long term capital gains, which is taxed at lower rate.

Answer 4

Can you roll the profit over to another investment? How about inquiring about a 1031 exchange?

Answer 5

You could use a 351 exchange.

Answer 6

Sell for less