Problems arise when real estate investors don’t follow federal and state tax laws. This is why you need professional advice. Although I am not a tax advisor, here are some common mistakes beginning real estate investors make by not understanding tax liabilities:
The reason flipping houses is a mistake for some beginners is that they don’t know the income tax consequences. One problem with flipping houses, or selling too many properties too quickly, the IRS could say that your real estate business is your trade, subject to ordinary income and self-employment taxes.
Self-employment tax, a social security and Medicare tax primarily for individuals who work for themselves, is similar to the social security and Medicare taxes withheld from the paycheck of most employees. The self-employment tax rate costs you 15.3% of your profits. (However, this may provide retirement benefits.)
Another common mistake that beginning investors make is selling a property after holding it for almost a … Read the rest