Looking to save on closing cost

[Kerry White]

So i bought my first property 8/13 I'm responsible for the 2014 taxes which are roughly $3,500 i have been holding and renovating this for quite some time now due to unfortunate events. But now i am ready to sell. Home was bought for 20k, roughly 30k into improvements thinking of a listing price of 75k. I am behind in taxes have a bunch of credit and personal debt. I need to know what would be the best way for me to save on closing and which tax installments will i have to pay for this year )2015) for buyer.

im also intersted in learning how a 1031 exchange works and will it work best for me. I am still determined to keep learning and pushing through my newbie RE experience.

[Brandon Hall]

Originally posted by @Lumi Ispas:

@Kerry White, the income taxes you'll pay it won't be that much. Because you owned the property for more than one year, when you close on the sale, you'll be paying income tax at a rate of 15% for IRS and 5% for IL. Keep in mind you'll pay tax only for the profit. 

Let's do a recap here. You bought for 20K and invested another 30K, that's 50K you are in the property for. If you list at 75K and sell for 70K, it looks as you made 20K after deducting the 50K you've already invested. If you did not live in the property, than you can add all the other expenses you had: utilities, insurance, the property tax that will be paid at closing, the closing cost you paid when you bought the home and the closing cost that you'll pay at sale, which probably is another minimum 5-10K, so you'll profit will be 10K. If you lived in the home in the last 2 year, you pay no income tax. If you did not live there, than you'll pay $1500 for IRS and $500 for IL. 

This is a simplified way to understand how taxes work. Your case might vary, and I will advise you to talk to a CPA or your accountant to make sure you got this!

Good luck to you!

Excellent post - the favorable 15% capital gains tax likely will not apply here, rather tha asset will be taxed at ordinary rates as it has been held for sale (i.e. flipped). Holding time means little when investment intent has not been demonstrated. I have no idea if the OP can demonstrate investment intent, but following up @Bill Exeter's post stating that the property does not qualify for a 1031, it will also not qualify for long term capital gains. 

Held for investment vs. not is a grey area. There may be a way to dodge the bullet, but the OP needs to connect with a CPA and 1031 specialist quickly.