If you’re thinking about buying a home to fix up and then sell for profit, you will have to pay tax on that gain, according to Kadrlik. One listener called in asking this question and Kadrlik explained that generally when purchasing and flipping a home, you’re in the trader business. There is no way to exclude or defer the gain because you’re holding it for a period of time while you make improvements. However, if you’re thinking about selling your primary residence you can exclude up to $500,000 of gain on the sale. Kadrlik added, “People, quite often, don’t realize that you don’t have to pay taxes on the gain at certain levels.”
Also in studio, was Bruce Helmer, who hosts Your Money on 830WCCO on Sunday mornings. He was able to tag-team with Kadrlik about a lot of these things. As a financial planner, Helmer talks to many of his clients about where their money needs to go. “In my industry, I run into a lot of do-it-yourself-ers and I remind them this type of information is why you need to seek out professional advice,” Helmer said. You need the professional guidance when buying a home or doing your taxes so you make wise decisions and get it done right.
Helmer also discussed with Prasky why owning real estate, even if it puts you “in debt” is a smart choice. According to Prasky, sales overall are up 17% since last year and the home values are about where they were in 2006. We are seeing some recovery and with prices and interest rates down, it’s important to add real estate to your investment portfolio – it’s called good debt.
Helmer explained, “It’s ok to borrow money to buy real estate because you’re buying what’s an appreciated asset. You’re buying your family’s lifestyle.” Many waste their [borrowed] money on things they don’t need, racking up their credit and have outrageous interest rates that are not deductible. That is inefficient or bad debt, as Helmer called it.
“I believe in real estate as a diversified portfolio and when I say real estate, not just the home you live in, but real estate as an investment,” said Helmer. If you’re thinking about taking the plunge and buying a home, now is the time. So do some homework, ask your questions, and know what will be the best move for you.Mp3 of Saturday’s show is also available for you to go back and review. The listeners had excellent questions – many related to tax issues, so play it back and take notes, or contact the Real Estate Radio Hour crew with any other inquires. 800.246.1867