New Property Business
Stanners subscriber Posts: 1
edited April 2007 in Selecting a Business
From next year my wife and I are going to self build an eco-friendly house, live in it for a yet then sell for profit, would we be subject to capital gains tax? during that year we are going to buy small cottages, renovate and use as holiday lets, setting up a holiday letting business. whilst these plans are in motion is do you have any recomendations of obtaining working capital as obviously mortgages will still have to be paid.
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As for Capital gains, I believe you would have to live in the home for 2 years for it to be considered primary residence and therefore not subject to capital gains. In less than 2 years, it would be subject to normal income, short term capital gains or long term capital gains depending on the duration of the investment.
I would strongly consider brushing up on the 1031 Tax Free Exchange (which is inaccurately named because it is a tax deferral not a tax free exchange). This is also know as a Starker Exhcange (or a reverse Starker depending on the transaction).
Most real estate books cover this very superficially (and inaccurately) due to some of the complexity of the provisions. They really are not that complicated with regard to what you are attempting to do. When you start trading properties, it becomes much more complicated. I have done a 1031 Exchange on a property that saved me thousands in tax obligations. The beauty of the transaction is that the longer you roll the gains, the lower the tax liability becomes at the time you cash out.
Can you point out where you feel I was inaccurate as you state "Second the advice they offered is inaccurate when it comes to when you can use a 1031 even if this was a US real estate deal."?