Tuesday, October 07, 2008

Did You Intend to Flip That House?

I recently had a chat with my broker about flipping houses and how the tax rules apply. Now, this isn't a blog post on tax laws and 1031 exchanges. No, if you want to catch those details, then you have to get in touch with Paul, he's got the smarts on that angle.

Flipping houses is all the rage these days. Yes, you can make a lot of money doing that but are you flipping houses for your regular income? If so, you better be prepared to pay the income taxes on it. The rules all changed back on July 9, 2006 and those of you who are into flipping houses need to ask yourself the simple question of "did you intend to flip that house?" If you did, then pay up to Uncle Sam. Here is a good article of the rules, although with the recent bailouts, they don't seem to have worked so well. (I'm just saying...)

Now the gamut we run at Dizmang Properties is a little different. In a nutshell, our investors purchase some disgusting, stinky and oftentimes creepy houses in Springfield, MO. They invest some money into it to fix it up, a la fix-and-flip style...EXCEPT, they don't flip it and sell it. They then hold it.

They hold it and put a Tenant in it for a few years. The Tenant is buying them that building by paying the rent and it's working out well for the Investor. If they go to sell it, then they do a 1031 Tax Deferred Exchange on the property (again, ask Paul for details) to avoid paying capital gains taxes. And yes, there are all sorts of rules to go along with that as well.

I am not a tax specialist or attorney (obviously). Nor am I financial planner. My job is to be the REALTOR/Property Manager. I help find the houses that need a little tlc, plan out budgets for remodeling, manage the property and pay the bills on it. I just wanted to give you something to think about as the end of the year approaches.