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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
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Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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Tax rate on capital gains

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Purchased a house in October 2004.
I plan to sell the house in the next few months, what will the tax rate be on the profit?    
Assuming you do not qualify to exclude any of the gain under the provisions of IRC Sec. 121 (Exclusion of gain on principal residence) or 1031 (like-kind exchange).

If you sell the house at a gain and owned it less than one year as of the date of sale, the gain will be taxed as ordinary income (i.e. whatever you marginal tax bracket is in the year of sale).

If you hold the property for more than one year, the gain will be treated as long-term capital gain (i.e. taxed at a max rate of 15% federal). Any accelerated depreciation taken during your time of ownership would be recaptured as ordinary income
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Hello Chris, the property is an investment property, but will not be exchanging for like-kind. The exclusion of gain on principal residence would only apply if owner occupied for at least 2 years, in which my case would not apply, is that correct.

The property was purchased last year for the purpose of "flipping" and hope to sell within the 1 year.
You must own and occupy the property as your personal residence for at leat 2 out of the last 5 years as of the date of sale to get the exclusion. A pro-rated exclusion is available if you moved out of the house for business or health reasons or some other unforeseen circumstance.

Assuming this does not apply to you, any gain you realize by "flipping" the property in less thenone year is absolutely treated as ordinary income subject to taxation at your marginal tax rates. Remember to increase your basis in the property by the amount of any improvements or fix-up expenses you incur.
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience: CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
Christopher Phelps and other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Answer was accepted and paid for.

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