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Capital Gains Tax Real Estate Flipping

Many real estate investors think that capital gains tax in real estate flipping will eat away too much of their profits. While capital gains tax for real estate flipping is present whenever you make a profit, there are ways to deal with capital gains tax in real estate flipping. First of all, you should take into account the amount of capital gains tax when flipping real estate. Factor the house flipping tax laws into your equation and calculate how much flipping home tax you will have to pay before you decide to flip a house.

Capital Gains Tax Real Estate Flipping

If you are worried that capital gains tax in real estate flipping will kill all your profits, don't worry. The capital gains tax in real estate flipping is only a portion of your profit made so if you don't make any money flipping a house, then you won't have any capital gains tax to pay to the IRS. Also, you can deduct all the expenses concerning real estate investing before you have to pay capital gains tax in real estate flipping.

Long term capital gains tax in real estate flipping

If you are flipping a home in less than a year then you will have to pay short term capital gains tax in real estate flipping which is higher than the long term capital gains tax in real estate flipping. The short term capital gains tax in real estate flipping is at the same rate as ordinary income such as wages and salary whereas the long term capital gains tax in real estate flipping is about 15% of the profit made. One neat trick you can do to pay less capital gains tax in real estate flipping is to delay the closing of your real estate flipping deal until you have held the property for one year or more.

Paying no capital gains tax in real estate flipping

Another advantage of the tax laws on capital gains tax in real estate flipping is if you live in the home you are about to flip for 2 years. Depending on your tax filing status, you can often deduct a large sum of profit from the sale of the house. The house flipping tax laws in this case are favorable for married couples. When you live in a house that you intend to flip in time to take advantage of the tax breaks given by the IRS, it is called homesteading.

Deferring Capital Gains Tax Real Estate Flipping

Another way to defer capital gains tax in real estate flipping is by doing a 1031 exchange. A 1031 real estate exchange allows real estate investors to roll the profit of the sale of an investment property into another similar property without incurring capital gains tax for real estate flipping.