House Flipping Question

flip_it_fast · #1 12-07-2010, 02:21 AM

Okay I have a question someone else asked me. Maybe a good one for Jared.

Can you buy a house and almost immediately put it back onto the market? I am talking same day or within a month.

If so how do capital gains play in it? Is the amount you pay dependent upon your profit or how does that work?

Do you have to have lived in the house or owned it for a certain amount of time to lower the capital gains tax?

Are there any other tax penalties that come into play in a situation like this?

Thanks a bunch in advance!

flippinout · #2 12-07-2010, 01:58 PM

I have contacted Jared and hopefully he has the time to come and answer your question. Hes always so helpful.

And having experts here to handle this type of question is a really big help because you are sure that you get the correct information.

JaredfromIndiana · #3 12-07-2010, 10:19 PM

That's a tough one. I know that FHA had a 90 day seasoning rule last year, which meant that if you bought a home you had to own it for 90 days before you sold it. This upset a lot of investors understandably. They lifted this rule earlier this year.

As far as taxes go, I have no idea. I would contact your accountant with those questions. Plus it's against my rules to give legal or tax advice. Sorry, can't really help on this one.

realestatehound · #4 01-23-2011, 10:35 PM

I don't pay capitol gaines taxes on flips. In Ky. I pay income tax on my profit just like any other business. It is considered income here, but laws are different in other states. I take the total cost of rehabbing the house, interest and such out of the balance that I sold it for and what I paid for it and that balance is considered my profit.

realestatehound · #5 01-23-2011, 10:40 PM

Sorry for different post but I couldn't remember all your questions. I sold one hose that I had just purchased at Master Commissioner Sale in less that 5 minutes and made $8,000 dollars. I could have held on to it and made more, but my Dad always told me that a bird in the hand is worth 2 in the bush so I let it rip. It usually takes me 30 days to rehab the house, but you can sell the at anytime. Hope this helps.

flippinout · #6 01-24-2011, 01:01 AM

I think that if you can make an instant profit that big, that your dad is absolutely right. Go for it.

Im glad that they did lift the 90 day seasoning rule. This way if you are done with a flip in a month, it can go on the market immediately which is both a help to the seller and potential buyers.

Thanks Jared for pointing out that they have lifted the 90 day seasoning rule and thanks realestatehound for letting us know that there can be instant profits when you buy a home to flip.

coach · #7 01-24-2011, 07:13 PM

Gain on the sale of real property is categorized between long term and short term based on the date it is acquired and the date it is sold. If you sell the property within five months of purchasing it, you will have a short-term capital gain. Short-term capital gains are taxed at the same rate as ordinary income, which can be as high as 35 percent.

flippinout · #8 01-25-2011, 01:13 PM

35%, that seems awfully high. If that is the going rate for taxes in most cases, one would think our national debt would shrink some. lol

How are long term sales taxed? And is it that high a percentage?

These are facts that I personally think all new flippers need to be aware of and I sure appreciate all the valuable information you bring to our forum.

BT5150 · #9 02-05-2012, 12:22 AM

Coach is right about capital gains (short-term vs long term) but Realestatehound is also right about the profit part of it. If you engage in a regular pattern of business (like if you do multiple flips in a year and especially in more than one year) then the IRS deems you to be IN that business, which means that capital gains don't apply, you have to figure it as profit or loss (and you're liable for self-employment tax, too!). If anyone is doing flips over and over and basically operates a business and is writing them off as cap gains, well then you should either get a competent accountant or fire the one you have now!

(I have my bachelor's in accounting and sat for the CPA exam, although I never went into public accounting, so technically I'm not a CPA)

littleroc02us · #10 02-28-2012, 07:56 PM

So I've noticed that the HUD/FHA extended the 90 day guideline until 2012 December or is that not true? My question is, if I get a conventional mortgage does that rule apply?