should I flip the house or wait 1 year? Need Advice


D

drobinowicz

I recently purchased an investment house for $180,000. It is
brand new and I know the builder so he gave me an inside
scoop. Now, 1 month later, they are selling for $250k and
there is a waiting list.

I am pondering whether or not to sell the house and do a
flip. As I understand it, if I do a flip the IRS considers
the house a "dealer" house because I bought it in their eyes
not as investment but as inventory and I have to pay
ordinary income tax rate on it. Or if they do consider it
investment it's the same tax rate for short term cap gains.

Now if I hold the property for 366 days it is a long term
cap gain which is a flat 15%. So we're talking quite a bit
of savings on taxes.

I don't know what I should do can anyone give advice or find
out any way I can get a better tax break or get around this?
I could really use the money now but would rather pay 15%
then 28% tax. Thanks.
 
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P

Paul A Thomas

I recently purchased an investment house for $180,000. It is
brand new and I know the builder so he gave me an inside
scoop. Now, 1 month later, they are selling for $250k and
there is a waiting list.

I am pondering whether or not to sell the house and do a
flip. As I understand it, if I do a flip the IRS considers
the house a "dealer" house because I bought it in their eyes
not as investment but as inventory and I have to pay
ordinary income tax rate on it. Or if they do consider it
investment it's the same tax rate for short term cap gains.
Either way. Short term gains are taxed as ordinary income.
If you are "in the business" of selling houses, then your
earnings may be subject to SE tax in addition to the tax on
the profits.
Now if I hold the property for 366 days it is a long term
cap gain which is a flat 15%. So we're talking quite a bit
of savings on taxes.
The decision as to whether or not you are in the business of
buying and selling houses (like of like a used house dealer)
is going to be based on the various facts and circumstances.
Businesses that happen to be so lucky as to hold their
inventory for more than 365 days, still have ordinary income
on the profits.
 
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D

David Woods

I recently purchased an investment house for $180,000. It is
brand new and I know the builder so he gave me an inside
scoop. Now, 1 month later, they are selling for $250k and
there is a waiting list.

I am pondering whether or not to sell the house and do a
flip. As I understand it, if I do a flip the IRS considers
the house a "dealer" house because I bought it in their eyes
not as investment but as inventory and I have to pay
ordinary income tax rate on it. Or if they do consider it
investment it's the same tax rate for short term cap gains.

Now if I hold the property for 366 days it is a long term
cap gain which is a flat 15%. So we're talking quite a bit
of savings on taxes.

I don't know what I should do can anyone give advice or find
out any way I can get a better tax break or get around this?
I could really use the money now but would rather pay 15%
then 28% tax. Thanks.
You already listed the issue. It's your decision to make.
 
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I

Ivan Erwin

I recently purchased an investment house for $180,000. It is
brand new and I know the builder so he gave me an inside
scoop. Now, 1 month later, they are selling for $250k and
there is a waiting list.

I am pondering whether or not to sell the house and do a
flip. As I understand it, if I do a flip the IRS considers
the house a "dealer" house because I bought it in their eyes
not as investment but as inventory and I have to pay
ordinary income tax rate on it. Or if they do consider it
investment it's the same tax rate for short term cap gains.

Now if I hold the property for 366 days it is a long term
cap gain which is a flat 15%. So we're talking quite a bit
of savings on taxes.

I don't know what I should do can anyone give advice or find
out any way I can get a better tax break or get around this?
I could really use the money now but would rather pay 15%
then 28% tax. Thanks.
Can you be sure that this property will be worth more than
$250,000 or even more than $180,000 at the end of one year?
That is a risk that you are taking.

On the other hand, if it continues to appreciate at the same
rate of 38.89% per month for the next 11 months your
investment house will be worth $6,677,518 at the end of 12
months from the date of your purchase.

Recently (2005) in Las Vegas investors/speculators were
buying certain new units like crazy. The market softened a
bit and the developer lowered the price of the new units by
$200,000! (Not sure what the previous price was.) The
developer could still make money at the lower price. The
investors were very unhappy.

Ivan Erwin
 
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