There are ways to pay less tax on a flip-property profit.
The easiest is the capital-gains technique. Simply hang onto the property for more than a year and you'll pay long-term capital gains taxes instead of higher ordinary rates you'd pay on short-term capital gains. When planning your capital-assets strategy, try to sell the money-making real estate during the same tax year you suffer a loss on another long-term asset. This way, you can use the loss to offset your gain.
Want to avoid taxes altogether? Move into the investment property and turn it into your primary residence. As long as you live there for two years (or a total of 730 days -- and the occupation time doesn't have to be sequential) out of the last five, the IRS will accept that it was your home. Then when you sell it, up to $250,000 ($500,000 if you're married and file jointly with your spouse) of your profit is excluded from taxation.
You can also defer tax on your real estate gain by exchanging it for another property, known as a Section 1031 exchange.
Comments(1)