subject: Obtain Tax Benefits When Investing In Miami Real Estate [print this page] In this type of real estate climate, sellers are generally advised not to hold their property any longer. Selling immediately is sometimes a must, except, maybe, for most investors. If youre planning to sell the Miami real estate investment property youve just flipped, it may better to hold on a sec and wait. Tax benefits are a popular reason why investors halt their sales, and here are ways how to gain the same advantage.
Wait for more than a year
When you are flipping a Miami real estate property, or any real estate investment property, a huge chunk of the profit will proceed to the IRS. You can avert this if you wait for more than a year before flipping. Since profit from an investment is considered as capital gains, it will be taxed on two separate bases: 1.) income, and 2.) length of time of ownership.
If you decide to hold the Miami real estate investment property for less than a year, you're likely to be charged with a hefty 35 percent income tax rate. On the other hand, if you keep the property for more than a year, youll likely subject to long-term capital gains taxes, which are around 15 percent tops.
Live in the property
But if you want to avoid capital gains tax, you must make your investment property as your primary residence, which means you have to spend at least two years living in the house in the period of five years. After establishing residency, you can then decide to sell the property and be eligible for $250,000 capital gains without paying taxes.
Like-kind
Another option to avoid capital gains taxes is to do a like-kind exchange. For commercial real estate investors, this is popularly known as 1031 Exchange. This provision allows you to exchange a property for another of similar value in order to defer tax bill. The properties to be exchanged must both be used as investments. In addition, since your real estate property must also be exchanged for another real estate property, but not necessarily of the same quality.
Business taxes
Even if you hold one Miami real estate property for more than a year but complete many other real estate transactions each year, the IRS will still consider your transactions as business and not investment strategy. If in case you're earning more than half of your income from real estate, the earnings will turn to a method of producing income, and as such, subject to ordinary tax rates.
