Loopholes: Mortgages, 1031s, Taxes, HELOCs,etc.

motion · 11-29-2007, 10:08 AM

Let's hear them. What are the legal loopholes and how can we take advantage of them? In detail please, with factual information only.

Mine: Buy or build a house. "Live" in it for 2 years. Keep the gains tax-free. That's amazing!!!! One could live their entire life building homes and not paying taxes.

Of course, we are assuming that a Republican will be in office for the foreseeable future and existing laws apply.

id10t · 11-29-2007, 10:18 AM

Well, my son was due Jan 3, but he was getting "big" so the doc asked us when to schedule the c-section... we chose Dec 29 .... and got credit for the dude for the whole year

TerryBPP · 11-29-2007, 10:46 AM

Quote:

Originally Posted by motion

Let's hear them. What are the legal loopholes and how can we take advantage of them? In detail please, with factual information only.

Mine: Buy or build a house. "Live" in it for 2 years. Keep the gains tax-free. That's amazing!!!! One could live their entire life building homes and not paying taxes.

Of course, we are assuming that a Republican will be in office for the foreseeable future and existing laws apply.

That only applies for income tax of course. Didnt want anyone to think it was completely tax free.

Porsche-O-Phile · Porsche-O-Phile's Garage

It also assumes you can sell for considerably more than you buy for - which is absolutely not the case for most of the market today. In order to take a chance at it, you'd be exposing yourself to considerable risk right now, certainly not worth the potential returns for 99.99999% of the situations out there.

In a normal market that hadn't been shot full of HGH (Housing Growth Hormone) for the last 10 years I'd agree 100%. Now is positively the wrong time.

OTOH, I see a small business venture as an excellent tax opportunity right now.

motion · 11-29-2007, 11:38 AM

I believe you can still easily pick any number of markets in the US and build from the ground up and make very good money. The key is to act as an owner-builder and keep tight control over costs.

Porsche-O-Phile · Porsche-O-Phile's Garage

Possibly, but since the profit is only realized at the time of the sale, to whom do you sell? Sales are plummeting, inventories are bloated and the potential pool of buyers is in the tank. Even looking out 3-4 years (allowing time for your 2 year C.G. exemption, land acquisition, design, construction, etc.) it seems an extraordinarily risky venture. By that time the market MIGHT be turning, but I don't see many reasons for optimism right now.

Rick Lee · Rick Lee's Garage

Motion, I believe the cap. gains exemption applies to any house you've lived in for a total of two of the last five years. So, since you own plenty of houses, you could just hopscotch from one to the next every two years. I think you could even sell two of them within those five years, if you've spent two years in each of them, and have it all cap. gains tax free. Not that you'd want to live where your rentals are though.

berettafan · 11-29-2007, 05:22 PM

Quote:

Originally Posted by TerryBPP

That only applies for income tax of course. Didnt want anyone to think it was completely tax free.

damn good point there. transfer taxes and realtor commissions will eat up a good percentage when playing that game.

motion · 11-29-2007, 05:30 PM

Quote:

Originally Posted by Rick Lee

Motion, I believe the cap. gains exemption applies to any house you've lived in for a total of two of the last five years. So, since you own plenty of houses, you could just hopscotch from one to the next every two years. I think you could even sell two of them within those five years, if you've spent two years in each of them, and have it all cap. gains tax free. Not that you'd want to live where your rentals are though.

You're right... Albuquerque is not what I had in mind for my retirement years, but yeah, that's definitely the point

Dantilla · 11-29-2007, 05:36 PM

Quote:

Originally Posted by Porsche-O-Phile

Possibly, but since the profit is only realized at the time of the sale, to whom do you sell? Sales are plummeting, inventories are bloated and the potential pool of buyers is in the tank. Even looking out 3-4 years (allowing time for your 2 year C.G. exemption, land acquisition, design, construction, etc.) it seems an extraordinarily risky venture. By that time the market MIGHT be turning, but I don't see many reasons for optimism right now.

Yeah, the market is down right now, but it's been down before, and will be down again. Long Beach has been hit harder than most places a couple of times, but usually a blip like this lasts only a year or two.

I may jump back into the market pretty soon to take advantage of the bargain prices.

An uncle has some duplexes he's going to sell off as condos. He is going to live in each half for two years, then sell.

turbo6bar · 11-29-2007, 05:47 PM

Quote:

Originally Posted by motion

You're right... Albuquerque is not what I had in mind for my retirement years, but yeah, that's definitely the point

1031 into a few nicer properties, move in and sell 2 years later. Depreciation recapture is the part that sucks about this plan. If you hold for a long time, this can really sting at tax time.

motion · 05:52 PM

Jurgen, I don't believe you can 1031 into properties with lesser value.

Edit: my mistake, I mis-read. You are suggesting to kick in additional cash.

turbo6bar · 11-29-2007, 06:05 PM

I apologize for the missing info.

1031 from 2 or 3 smaller properties into 1 larger rental property. Hold it as an investment for a year, then convert it to a primary residence. Later, resell and take the capital gains exemption.

This is a strategy if you have a fleet of smaller rentals that wouldn't work as a primary residence. Trade 3 small rentals for 1 primo place. Timing is an issue, obviously. Reverse 1031 exchange, perhaps?