Well that is true in most cases. However, depending on your intentions and actions, real estate sales can be taxed as ordinary income – often at much higher rates than capital gains. Sometimes investors go into a real estate transaction with the intention of holding it as an investment. Like all good pundits tell you, for true success, invest for the long term. Nevertheless, every so often, another investor comes along and makes an offer you cannot refuse – especially when they are in a ‘hot’ market. One thing leads to another and next thing you know, you, are walking away with a pocket full of cash and a big smile. You have just executed everyone’s get rich quick plan – buy low, sell high – now let’s do it again and again. Whoa! Better stop and think about who else may be getting rich here – in this case its Uncle Sam! Believe it or not, I have seen this played out more than once.
Remember, intentions and actions are what matter when determining how a real estate transaction will be taxed. While both are very important, if they are not in alignment, you may not experience the results that you hoped for. To learn more detail about planning for your real estate investments, please read this article by Allison DeLuca, CPA.