Subject:  Real Estate
Date:  Mon, 27 Sep 2004
From:  Jose

I want to buy the home next door to mine, fix it up and sell it 2 or 3 months later. What kind of taxes and fees will I have to pay? What are the negatives in selling so fast?

Answer

Date:  Fri, 08 Oct 2004

Hello Jose,

I don't know what fees you will have to pay. There will probably permits for the repair work. There may be commissions to real estate brokers.

If this is an isolated transaction, any gain will be a short-term capital gain, subject to regular income tax rates (maximum 35%). If you held the house for more than one year, you could qualify for long-term capital gains rates (maximum 15%). Holding the house for a longer period of time exposes you to more market risk. If mortgage interest increase dramatically, the value of the house could go down or it could be harder to sell.

If you do a lot of "rehabs", you will probably have a trade or business, not qualifying for capital gains treatment and subject to self-employment taxes in addition to regular income taxes.

Good luck!
Mike Gray

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