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

By admin on May 24, 2011

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?

Posted in | Tagged , , , , | 5 Responses

5 responses to “I’m flipping a house, is there any way to reduce Capital Gains tax?”

  1. sunshine
    sunshine
    May 24, 2011 at 8:40 am |

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

  2. saturnsal
    saturnsal
    May 24, 2011 at 9:06 am |

    You could use a 351 exchange.

  3. wartz
    wartz
    May 24, 2011 at 10:05 am |

    Sell for less

  4. bostonianinmo
    bostonianinmo
    May 24, 2011 at 10:54 am |

    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.

  5. MukatA
    MukatA
    May 24, 2011 at 11:43 am |

    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.

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