Question for you property flippers....

[RiverOtter]

If you buy a preconstruction condo, take it to hard contract, hold it for 12 months, then sell or reassign the contract to someone else, will you be taxed at ordinary income or long term capital gains tax?

[Smiling JOe]

If you buy a preconstruction condo, take it to hard contract, hold it for 12 months, then sell or reassign the contract to someone else, will you be taxed at ordinary income or long term capital gains tax?

I am not an accountant, but I bet my accountant would say that if you hold it 1yr + 1day from the date of closing (not date of contract), you will be taxed on the long term capital gains, currently no greater than 15%. Sell it two days earlier and get ready to fork out the big bucks (ordinary income tax rate).

[RiverOtter]

I am not an accountant, but I bet my accountant would say that if you hold it 1yr + 1day from the date of closing (not date of contract), you will be taxed on the long term capital gains, currently no greater than 15%. Sell it two days earlier and get ready to fork out the big bucks (ordinary income tax rate).

So you have to actually close on the property and hold it for 12+ mos. Hard Contract does not count? :(

[Smiling JOe]

So you have to actually close on the property and hold it for 12+ mos. Hard Contract does not count? :(
That is correct, Sir.
With a hard contract, you have only equitable interest in the property, but you are not the "owner." The owner is listed on the Warranty Deed, which will show the owner as the Development, until the time of close. The IRS is looking at length of time for "ownership" to calculate tax rate.

[RiverOtter]

That is correct, Sir.
With a hard contract, you have only equitable interest in the property, but you are not the "owner." The owner is listed on the Warranty Deed, which will show the owner as the Development, until the time of close. The IRS is looking at length of time for "ownership" to calculate tax rate.

:bang: Another example of the "Man" trying to keep a brotha down :bang:

[SoWalSally]

I am not an accountant, but I bet my accountant would say that if you hold it 1yr + 1day from the date of closing (not date of contract), you will be taxed on the long term capital gains, currently no greater than 15%. Sell it two days earlier and get ready to fork out the big bucks (ordinary income tax rate).

Except securities, jewelry, art, snowdome collections, whatever, if held for one year and then sold at a profit are all considered long-term capital gains, correct?

Why would a contract be any different?

[Smiling JOe]

Except securities, jewelry, art, snowdome collections, whatever, if held for one year and then sold at a profit are all considered long-term capital gains, correct?

Why would a contract be any different?
I AM NOT AN ACCOUNTANT. IS THERE AN ACCOUNTANT AVAILABLE?

My guess is:
The IRS interprets a signed contract as having only equitable interest and does not mean that you own the property. To "hold" property means to "own" property, rather than having only equitable interest. The IRS is looking for the date which the money is exchanged for the property (the exchange of goods). That would be the date of closing. It makes sense to me.

Question -- What are snowdome collections???

[landlord]

Smiling Joe is correct. in order for the one year period to commence, you must hold both equitable and legal title. a purchase agreement only transfers equitable title.

[Bob]

Smiling Joe, I think snowdome collection refers to those water-filled souvenirs available at Wal-Mart and other fine retailers. It could also refer to old guys w/dandruff driving around in their Sebring convertibles.

[kurt]

Smiling Joe is correct. in order for the one year period to commence, you must hold both equitable and legal title. a purchase agreement only transfers equitable title.

Leave it to the Landlord. :lol:

Are you cpa?

[GraytonBound]

Smiling Joe, I think snowdome collection refers to those water-filled souvenirs available at Wal-Mart and other fine retailers. It could also refer to old guys w/dandruff driving around in their Sebring convertibles.

:lolabove: :lolabove: :floor:

[Dreaming watercolor]

Interesting question raised this morning. I just spent a half hour on the phone with my CPA. He advised me that if you assign the contract after 1 year it is treated as a capital gain not ordinary income. He stated he has had a lot of clients who have flipped properties in Galveston Tx. Just my 2 cents

[RiverOtter]

Interesting question raised this morning. I just spent a half hour on the phone with my CPA. He advised me that if you assign the contract after 1 year it is treated as a capital gain not ordinary income. He stated he has had a lot of clients who have flipped properties in Galveston Tx. Just my 2 cents

:cool: Sounds like I need an new accountant :cool:

[kurt]

Interesting question raised this morning. I just spent a half hour on the phone with my CPA. He advised me that if you assign the contract after 1 year it is treated as a capital gain not ordinary income. He stated he has had a lot of clients who have flipped properties in Galveston Tx. Just my 2 cents

Maybe Texans get special deals. :wink:

You must really love numbers if you can spend 90 minutes on the phone with a CPA. :floor:

[landlord]

although i am an attorney (ceo of a private reit ) and have commercial office buildings in 7 states, i am not a cpa. nevertheless, i would be surprised if capital gains treatment would apply in an instance where the purchaser never closed, but merely assigned a purchase agreement. but, again, i am not a cpa.

[kurt]

although i am an attorney (ceo of a private reit ) and have commercial office buildings in 7 states, i am not a cpa. nevertheless, i would be surprised if capital gains treatment would apply in an instance where the purchaser never closed, but merely assigned a purchase agreement. but, again, i am not a cpa.

I have gotten conflicting information. I think many people do not want a definite answer.

[Waterman]

I have gotten conflicting information. I think many people do not want a definite answer.
CONCUR!!! :clap_1:

[Advance The Man]

You must own it for 12 months and a day. Having a contract is not sufficient, the developer still owns the ongoing incomplete condo.

To get around this, legally by the way. You establish a LLC, have the LLC own the condo, get buyer prior to closing and 'sell' your LLC. As long as your LLC has been established for longer than 12 months and 1 day you only pay 15% cap gains.

We start LLC's frequently for this purpose down the road of selling the LLC.

[Georgian]

How does one sell a LLC to a buyer who thinks they are buying a condo? Tell me more. I'd like to know how the process works.

[Smiling JOe]

You must own it for 12 months and a day. Having a contract is not sufficient, the developer still owns the ongoing incomplete condo.

To get around this, legally by the way. You establish a LLC, have the LLC own the condo, get buyer prior to closing and 'sell' your LLC. As long as your LLC has been established for longer than 12 months and 1 day you only pay 15% cap gains.

We start LLC's frequently for this purpose down the road of selling the LLC.

Very interesting. Sounds reasonable, but would probably scare most people around here. I have not heard of people doing this in this area, but I can feel the ground shake as people run to their accountant while I type.

[kurt]

I spoke with a CPA who has been certified for 37 years. He said a contract held for 12 months and sold is treated as capital gains. If however you close on the property, the 12 month clock begins again because your type of asset has changed.

[RiverOtter]

I spoke with a CPA who has been certified for 37 years. He said a contract held for 12 months and sold is treated as capital gains. If however you close on the property, the 12 month clock begins again because your type of asset has changed.

Very intersting, thanx Kurt :cool:

[pg0178]

The flippers are going to get killed.... This is house of cards... It is sad that so many will look to blame someone else after they lose so much money... But right now they insist that it will only go up... Just like the stock market in 1999... everybody said it was only going higher and then after they got killed wanted to blame everybody else for there own stupidity.... I am a CPA/CFP and sadly it will be the little guy who come to the party last that always loses... THIS IS A FACT.. THERE ARE MORE CONDO'S THAT WILL BE COMPLETED IN 2006-2007 THAN HAS BEEN SOLD IN THE LAST 6 YEARS..... THATS AN IMPOSSIBLE NUMBER OF BUYERS THAT THE FLIPPERS HAVE TO FIND.... And the house of cards tumbles.....[/B]

[kurt]

And the sky falls. :roll:

[Bob]

Real estate along 30A is Frothy. I like frothy!!!!! Any house O' cards will from I/O loans gone stinky. I still think long term is up, up ,up.

[skier]

Bob,

I hope you aren't betting your life savings on the up, up and up theory. I agree wth pg0178. The demographiscs and prices and inventory don't add up to any more growth. In fact, all the signs point to a nasty fall. Any historical runup in stocks, real estate, bonds, gold, silver, etc. like the current runup in real estate has ALWAYS historically ended in a crash. If you own property, but your life, net worth and living don't depend on these high prices, you will be fine. But, watch out if you're betting the farm.

The market in SoWal isn't just frothy, there is "irrational exuberance" abounding with all of those that don't see the warning signs staring them in the face.

Within 12 months, come back and read these posts by us pessimists (I believe most of us on the pessimistic side are trained financial professionals). I hope you can call me chicken little at that time, but I wouldn't bet on it. 100% appreciation over the course of a year of two is not reasonable. Those that have been in for a couple of years should be okay. those that got in the last 12 to 18 months will get slaughtered if they were counting on flipping at a profit and they don't have the staying power to hold the property (or in the case of some of the developments, heaven forbid that must build a house within 2 to 3 years of purchase).

I remember having these exact same conversations with the stock market Bulls in 1999. They were sure the model had changed forever and that the old ways of looking at the market were no longer valid. They laughed at me for putting my money in money market funds. they weren't laughing in 2000/2001. And, look at the market since the crash. It's basicaly been flat for 5 years. Look at Japan. Stagnant for 20 years after huge runups in real estate and then a crash. The current runup looks too good to be true--so it probably is.

All that said, I still love my home in SoWal.

good luck.

[Buckhead Rick]

I also remember the stock market bears in 1999, the market went up another 25% from there. And where is the stock market today, about where it was then, after the second greatest bear market in our life times, and that market is made of intangable assets, you cannot live in your worldcom house. But you can along 30A, and collect rent also.

[skier]

Buckhead,

The real bubble in the late 90'S was a technology bubble and the NASDAQ is the true indicator of what happened in that sector. The NASDAQ remains 60% off its highwater mark of around 5000 and was off by over 80% at one point in time. The dow on the other hand is more of a general market indicator, and as you stated it has been flat, for about 5 years.

This scenario looks similar to the real estate situation in the US today. In general, the market is up nicely, but not outrageously. However, their are specific markets that appear to be severely overheated (supply is outstripping demand and prices are up 75% to 125%). These overheated markets, such as the area along 30A, are vulnerable. If we see a major decrease in some of these overheated markets, they could remain down for a long, long time from the current peak. However, it does not mean that the general real estate market in the US will fall so severely.

A couple of other points of interest. Heard from friend that is building some homes on the panhandle that Suntrust of Ga is no longer making real estate loans in the area (heard it second hand so it might not be true). Also, heard from another friend that got a call from Alys Beach asking why she hadn't made a bid in the first offering. Why are they calling potential bidders--is demand so low that they now have to call to get folks interested? I also heard that many of the folks that "won" the lottery in phase IV at Watercolor declined buying the property after "winning". Never heard of Arvida or any other developers having to search for buyers last year or the year before.

However, if you bought before the huge runup, as I did, and if you intend to own long term. You should be fine. If you bought 6 months ago, hoping to flip and make a killing, you could be in for some tough times.

Lots of folks seem to be angry with me for stating my opinion. That's too bad. Again, I hope I'm wrong.

[kurt]

Don't misinterpret discourse as anger. It's hard sometimes to interpret written commentary (emoticons can help). Message boards (and e-mail) require development of a peculiar type of "filter".

Kepp it up. :wink:

[FoX]

I heard from a friend of a friend that knows a farmer: Apples are not Oranges. :roll:

[skier]

Rick,

Actually the tech stock and panhandle real estate markets are very similar in many respects. Both runups are/were caused by huge amounts of speculation accompanied by lots of questionable borrowing practices (margin accounts in the 90's and short term interest only loans). Speculation is what got us here and its what will cause the big dropoff. Way too much temporary money and speculative lending.

There are much smarter minds than mine or yours pointing to a bubble in specific markets around the country. But, you never know. Markets can be fickle. Time will tell.

[Smiling JOe]

Skier,
You seem to be very educated in economics, and I would like you to share
your thoughts regarding the ways in which this unique local RE market will be affected from all of the things you mention in relation to way in which the total RE market across the US will be affected? To a large extent, we have been discussing the total RE market of the USA. During the great economic downturn following Sept 11, 2001, I remember this market increasing rapidly, thereby leading me and many others to believe that this local market is in some ways protected from national trends.

[skier]

I know nothing about economics, finance, real estate, or tiddlywinks. So, here is my quote from the Alys Beach thread--

Oh well, I guess you guys have finally convinced me. Phillip must be right about the continued 20% growth per year (down from the 50% plus recently). So, that means I can double my money every 4 years. Cool. I just went out and borrowed all I could against my primary residence and my second home in Florida with an interest only loan based on LIBOR that will adjust every month. I'll come down tomorrow and buy a place in Seaside, Watercolor and Rosemary. I can't lose.

:lolabove: :clap_1: :idontno: :blink: :shock: :( :eek:

[skier]

If only we were all so smart as we think we are (including myself), we would all be gazillionaires (my guess is none of us is). Been fun debating the real estate market. We all have our opinions. As with all markets/investments, you have bears and bulls. Someone will be right, someone will be wrong. Next time the tables will be turned.

I'm moving on to lighter topics. Let you know if someone pays "crazy" money for my house.

Hope everyone has a good summer. :D

[FoX]

If only we were all so smart as we think we are (including myself), we would all be gazillionaires (my guess is none of us is). Been fun debating the real estate market. We all have our opinions. As with all markets/investments, you have bears and bulls. Someone will be right, someone will be wrong. Next time the tables will be turned.

I'm moving on to lighter topics. Let you know if someone pays "crazy" money for my house.

Hope everyone has a good summer. :D

Seems to me you have great forum right here to sell your home to a bunch of optimists.

Why don't you post details and price? I might buy it before it loses 1/2 it's value.

[skier]

My house isn't a deal at a price of over $1100 per square foot (similar to what a house down the street sold for earlier this year). But, if it doesn't sell, we are very happy with our vacation home and I feel safe with my investment made at $450 per square foot.

BUT, if you want a real bargain, I just got the most recent price sheet from Arvida sales and there were 11 price reductions on the 60 plus properties listed by Arvida community sales. Things are getting downright cheap in Watercolor. There is a real bargain on a house built by Arvida in Phase III on lot 14 Cerulean Landing. The price dropped $400k from the list price last week. It was listed at $2.795 million its down to $2.395 million for 2500 square feet. Sounds like a steal at just under $1000 per square foot with only a half mile walk to the beach. It will probably be worth $4.8 million in 4 years according to several folks contention that prices will continue to rise 20% per year. Go for it! :clap_1: