Real-Estate Flip Deals Have a Catch
Amateur "flippers" in the real-estate market have more to worry about than a bubble. Many of them could be facing an income-tax audit -- and higher tax bills than expected.
The popularity of so-called flip deals has made section 1031 of the Internal Revenue Code popular with real-estate speculators. In a 1031 exchange -- also known as a "like-kind" exchange -- a person who sells a business or investment property can defer capital-gains taxes by immediately rolling the gains into a similar piece of property.
The trouble, tax experts say, is that people don't understand the rules. Many trust the advice of real-estate brokers, who often aren't well versed in tax law. Some amateurs are buying and selling properties too quickly, running the risk that the Internal Revenue Service may deem the transactions a person's trade or business, with gains taxed as ordinary income and subject to self-employment taxes. (Source: WSJ - DJWirenews)
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