Fix & Flip vs Buy & Hold // Real Estate Q&A

Real estate offers promising avenues for financial growth, but it's crucial to understand the different strategies and their tax implications. Let's break down two popular methods: Fix and Flip, and Buy and Hold, along with their tax considerations.

Fix and Flip: This strategy involves buying properties at low prices, renovating them, and selling them for a profit. The key tax implication here is that profits from the sale are taxable. The "70% rule" helps determine a property's purchase price to ensure a profitable flip.

Buy and Hold: This approach focuses on long-term investment, where properties are purchased and rented out for income while hoping for appreciation over time. Taxes on rental income are applicable, but investors benefit from deductions like depreciation and interest payments.

Taxes for Short-Term Rentals: Reporting rental income depends on the level of involvement. If actively managing the rental with substantial services, use Schedule C for business income. If it's passive, use Schedule E for supplemental income.

Joint Property Ownership: Married couples can file jointly or separately for rental income and deductions. Unmarried partners should file separately, with each reporting income and expenses based on their ownership percentage.

House Hacking: Renting out unused space in your home for income, like Airbnb, is a form of house hacking. It provides passive income and tax benefits such as deductions for property taxes and interest payments. However, reporting expenses accurately is vital, especially for shared spaces.

Navigating real estate taxes may seem complex, but understanding your situation and seeking professional advice can simplify the process.

Fix & Flip vs Buy & Hold // Real Estate Q&A

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