Date:  Fri, 20 Jun 2003
From:  Diane

Hi,

I am a new loan officer and I had a person ask me a question recently about capital gains. He said he didn't want to buy a home and sell it within 2 years because he thought the capital gains tax would be too great. How does short and long term work with real estate? Is it the same as with stocks? What is the time period and how much would he have to pay? Would it be worth buying a home and flipping it in that short of a time?

Diane

Answer

Date:  Mon, 7 Jul 2003

Hello Diane,

The rules for real estate are the same as for other capital assets, except for the exclusion when selling a principal residence. When the property is held more than one year before it is sold, the gain will be a long-term capital gain, eligible for the 15% maximum federal tax rate. Very rarely will a transaction result in a tax exceeding the income received, so thinking "the tax is too high" usually isn't a valid argument against going ahead. There may be other personal reasons for not going ahead that your client isn't telling you.

Good luck!
Mike Gray

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