Tax Issues That Most Investors Encounter When Flipping Real Estate

Many aspiring property investors think that real estate is more profitable than investing in stocks

. Aside from that, most flippers also get to enjoy the tangible aspect of the business. However, if you are not careful enough when flipping real estate, you can get into serious trouble with the Internal Revenue Service (IRS.) In this article, we will share with you some of the common tax issues that many flippers encounter.

According to the IRS, many real estate investors handle their transactions the wrong way. Either they do not know anything about taxes or that they were simply misinformed. For instance, many individuals think that buying a residential home, rehabbing it and, finally selling the property entitles him to get the old rollover provisions. The truth is that the rule on old rollover provisions only applies to residential properties and that it no longer exists. This rule has been in replaced in 1997.

Most investors seem to not mind the fact that the higher expectations they have, the higher taxes they will have to pay. Many of us think that if we invest in condominiums, we will make a lot of money. Yes, this is true but you also need to understand the fact that the taxes that come with flipping real estate can be tremendously high as compared to the taxes of individuals working in other industries.

Flippers should also be reminded that the IRS keeps a close eye on flippers. After completing real estate transactions over a short period of time, do not be surprised if the IRS considers your transactions as trade rather than a simple investment strategy. In such case, you will end up paying the higher ordinary income tax rate. Recently, the IRS has been closely attending to tax gaps. The tax gap is defined as the amount of money that the IRS cannot collect.

If you are really determined to give flipping real estate a try, ensure that you abide by the tax rules mandated by the IRS. Maintain a clean record. You can also keep a documentation with you. This will help you claim real estate deductions in the future. Always bear in mind that when you invest in properties and make improvements, the costs accumulated may be used as basis to offset your tax bill. Given this, the IRS recommends that you come up with a separate checking account for each property.

Be mindful about the tax obligations that come along with real estate investing. If you pay your taxes honestly and promptly, then theres no reason why you cant enjoy a lucrative career in real estate. To find a good property for your real estate business, go to www.rehablist.com.

by: Rainier Glenwood

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