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Capitol Gains

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alaskan1001

New member
What is the name of your state? Alaska
My friend and I bought a duplex to flip in Alaska, fixed it up and are selling it. My friend did an interest only loan and bought the place out right. I took out a $45,000 loan for the repairs. We both stand to make $25,000 - $30,000 a piece. Do I have to pay capitol gains on the profit? If so what percentage? Thanks
 


adjusterjack

Senior Member
We both stand to make $25,000 - $30,000 a piece. Do I have to pay capitol gains on the profit?
It's capital gains and, yes, you do have to pay it.

The percentage may depend on other tax factors.

Publication 523 Selling Your Home will be helpful to you.

https://www.irs.gov/pub/irs-pdf/p523.pdf
There is also the issue that you and your friend had a partnership which involves additional filing requirements.

I suggest that you both use a tax pro.
 

Taxing Matters

Overtaxed Member
Your adjusted basis in the property is the price you paid to buy it plus the costs of improvements you made to it. Your capital gain on the sale is the net sales proceeds (gross sales price less certain expenses of sale) minus your adjusted basis. What tax rate you pay on the gain depends on (1) your total income from all sources and (2) how long you held the property. You are flipping the place, which suggests you won't own it for long. But you'll save tax if you own the property at least one year so that you can use the significantly lower long term capital gains rates.

Publication 523, which Jack linked, really isn't the right publication because this home is not your personal residence. I suggest instead Publication 551, which explains basis, and Publication 544, which explains the gain.
 

LdiJ

Senior Member
What is the name of your state? Alaska
My friend and I bought a duplex to flip in Alaska, fixed it up and are selling it. My friend did an interest only loan and bought the place out right. I took out a $45,000 loan for the repairs. We both stand to make $25,000 - $30,000 a piece. Do I have to pay capitol gains on the profit? If so what percentage? Thanks
For each of you, your capital gain is 1/2 of the difference between what you paid for/invested into the property and 1/2 of the sales proceeds minus expenses. If that turns out to be 25-30k each then that is your capital gain.

Capital gains taxes are 15% (20% for very high income earners) for long term capital gains, and ordinary income tax rates for short term capital gains (assets held less than a year). Interestingly enough, there are some few people who would actually pay less for short term capital gains than long term ones, although that isn't really what the system intended. There are a handful of people who would have a 0 capital gain rate. Those are generally very low income people who just happen to have a capital gain. It happens most often with retirees who have only social security, but also an asset or two, when sold, produces a capital gain.
 

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