A way to make money in real estate is by using the one-time exclusion in the sale of your primary home, a residential property. There are several ways to leverage this tax advantage to move on and move up. There are a few stipulations. You have had to live in the house as your primary residence for at least 2 of the last five years.
The following is quoted directly from Google. IRC section 121 allows a taxpayer to exclude up to $250,000 ($500,000 for certain taxpayers who file a joint return) of the gain from the sale (or exchange) of property owned and used as a principal residence for at least two of the five years before the sale.
Here is a way to use this to your advantage. Consider a real estate purchase of a derelict home. You live in it while it is renovated with a future sale in mind. When you got it up to market and it is looking good, obtain a refi of the property. Take the money to purchase your next home project. After two years in the first one, you move into the next and put the first one on the market.
This can be done every two years. Even in a down market, a home bought cheap and sweat equity is used as you do most of the work yourself. The property can be brought to a condition and appeal that a profit can be seen in its sale. Consider all the things you can do to a property that brings up its value. The landscape, the interior décor, and added features such as decks, and granite countertops, all add value.
There are other ways to leverage sales so that capital gains are deferred when another “like-kind” property is purchased with the proceeds from the sale of one investment property for another one. The definition of like-kind is broad. There are several ways to “make money in real estate.” Call one of our expert agents to discuss getting into the real estate market, as an agent, for investment, or to purchase your first home.
North Country Properties (207) 307-2161. We’re Realtors® and you can depend on us. Call to discuss your real estate goals.