I am putting a bid on a condo today… I just have 1 question about it…
I may fix it up a bit and try to sell it… I believe there is a capital gains tax applied if I sell it within 2 years…
Is that correct?
Is there any way to avoid that? and how does it work?
Is the profit just added to my income? which would most likely move me into the next tax bracket?
Oh… crap… sorry 1 more question…
Is there an advantage of putting more money down? like 20% instead of 10%??
IIRC, capital gains tax applies if you own the condo for more than two years and don’t buy another property (which is intended to be your primary residence) once you sell the first one. If you have capital gains, they are taxed at a flat rate of 20% (federally). If you make money on the deal, but such amounts are not capital gains, then it would be ordinary income. If you have additional ordinary income, it would be added to your normal wages (and other income) and be taxed at normal rates for tax purposes (or not taxed if you have offsetting losses or other deductions).
If you do end up in the next tax bracket, remember that Unclue Sam only taxes you on money you make so its not so bad to be pushed up to the next bracket. Also, only the last few dollars you make are taxed at a higher level, not all your money. The first few thousand you make are taxed at one level, and the next at another. See page 75 of the instructions to the 1040 to see how tax rates apply to larger amounts:
If you put 20% down on a mortgage, you can lower your monthly payment and usually avoid primary mortgage insurance. However, with a good mortgage agent, you can usually avoid PMI even at 10% down by taken out an 80-10-10 mortgage. (Primary mortgage 80%, secondary mortgage 10% and 10% down payment).
Not quite. “An indivdual may exclude from income up to $250K ($500K for joint) realized on the sale of a residence. The individual must have owned and occupied the residence as a principal residence for an aggregate of at least 2 of the 5 years before the sale or exchange.” “This exclusion has replaced the rollover of gain provisions of Code sec#1034…”
If youlive in it less that 2 years, it gets complicated.