House Flipping Laws - Are There Any You Need To Know About?
If you're new to the idea of renovating properies for profit, you may be wondering if there are any house flipping laws that have to be adhered to when fixing and selling homes. In most places there aren't any laws that apply specifically to flips. However, there are a number of legalities that generally apply to real estate transactions or renovations that have to be adhered to.
First of all, if you live in the US you'll have to pay taxes on any profits. How much you have to pay depends on how long you held the house before selling. If you bought and sold the property in less than twelve months, it's considered a short term capital gain and the tax bite will be thirty-five percent. If the flip took over twelve months, then the IRS will call it a long term capital gain and income taxes will be due at the rate of fifteen percent. If you held the house for more than two years and lived there for at least two years out of the last five, it's considered to be your principal residence and no taxes are due unless the profit is more than $500,000 for a couple or $250,000 for an single filer. If you intend to take advantage of the principal residence exclusion, be aware that you'll need to provide documentation that will prove you actually lived there. Some things that help would be having had your mail delivered to the property, having the electric, phone, cable and other utility bills in your name, using the address on your drivers license, car registration, etc, and maybe even saving receipts from local businesses that you patronized during your residence there.
The seller of any property is legally required to divulge any problems they're aware of. So it's not a good idea to decide that to save money during renovation you're going to paint over the mold on the walls and ignore the fact that there's a serious mold problem inside them. A hefty lawsuit could be your reward.
When renovating the property, certain jobs are considered cosmetic and don't require permits or inspections. Others fall into the structural category, and you'll be required to pull permits, adhere to any applicable building codes, and pass required inspections before continuing. Don't ignore this, as it's easier and a lot cheaper to do it right the first time than rip out all the work and do it over again. Another legal point is to always be represented by an agent and real estate attorney when selling the property. If you absolutely have to go this alone, then at least use these individuals at the closing in order to ensure that everything is properly done, and you can go onto your next flip with a clear mind. To sum up, while there really are no house flipping laws, there are a number of associated legal requirements and precautions that every house flipper should respect.
|
