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Still waiting on that house…

March 15th, 2005 by Kenric

Well my New Construction SFH #1 is still not done. It’s being built very slowly which is killing me because I have money set aside for it and I’m holding off on buying anything until it’s done. However, every cloud has a silver lining. The value of the house has shot up to $380,000! That’s a full $130,000 in profit. In doing the tax calculations, if I sold immediately at $380,000 I would pocket only $66,000 after taxes. This is because selling within one year you are taxed at ordinary income rates which is 33%. Then you got 5% state taxes on top of that. Also, remember that I’m in it with a partner so it is $33,000 each, which isn’t bad at all.

However, how can I make this better? Well, taxes are 38% which is about $40,000. If I can hold onto the house for 1 year, taxes drop down to 15% + 5% = 20%. I would save 18% in taxes which is $19,000 and I might get more appreciation out of this. I can pay the mortgage for one year with the saved $19,000 and get to live in a house instead of my condo.

I talk it over with my partner and we agree that I should live in the house for at least one year, maybe even two. If there are signs of a bubble, we would sell the house, else I would just enjoy it for two years. So now this house went from investment rent to own, to flip, to primary residence. Thankfully, the lady picked a great house!

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