to Profits and Avoiding Taxes
Author : lousie Smith The temptation of making quick money is quite lucrative and has driven many people into property flipping. There are no exceptions; people from every possible profession have found the idea of buying a house and then reselling it for a sizable profit quite enticing. Flipping property has to be done with careful planning and tact to generate good profits. People should be, however, aware of the taxes imposed on property flipping because these taxes tend to snatch a big chunk from the profit made. People interested in flipping property should take proper advice from experts to understand the tax laws imposed and develop strategies to reduce the liabilities. If you happen to commit to multiple house flipping scenarios in a short period of time then the IRS (the Internal Revenues Service) will classify as a business transaction rather than an investment venture. In such a case you will be taxed under multiple laws and you will be charged federal, income and selfemployment taxes. The self-employment tax is average but the federal and income taxes are quite hefty. The total amount of tax may easily exceed 50%! If you plan to hold on to the property for a period of time and plan to sell it after values rise then you may be charged in two ways, depending on the time of sale. If you sell it quickly then it will be considered as a short term profit and charged as mentioned formerly. If you sell it, say after a year or two, it will be taken as a long term investment and charged less. You should get the advice from professionals to get yourself acquainted with such strategies. When flipping properties, people can also try another simple plan. If you buy a property or house with the purpose of flipping, you can move into it and claim it as your residence or a second house. If you live there long enough you will be subject to a special tax deduction—a big deduction. Again, only an expert can tell you the correct details and amount of deduction. If you are single, you will only make half the profit of what couples tend to make through this method. If you sell the same property within 2-3 years you will still receive a certain tax discount, if you show the reason for sale as relocation, change in employment, divorce, or other such unavoidable reasons. So get the expert’s view and avoid taxes biting into your scheme of things!
Published on Jan 19, 2011
Published on Jan 19, 2011
The temptation of making quick money is quite lucrative and has driven many people into property flipping. There are no exceptions; people f...