Most home buyers are in the market for a move-in ready residence. But if you have handyman skills and a good eye for properties with real potential, there are serious tax-free profits to be made in buying, improving, and selling a fixer-upper house.
Under section 121 of the Internal Revenue Code, you could be eligible to exclude up to $250,000 in profit from tax, if you own and live in your home for two of the five years prior to its sale. For married couples filing jointly, that figure doubles to up to $500,000 of tax-free profits. While this tax windfall is available to all home sellers, it’s particularly beneficial for savvy home shoppers who buy low, tackle the necessary work, and then resell the home at a profit. If all goes well, you could earn as much as a half million dollars tax-free in as little as two years.
Of course, real estate professionals recommend sticking with neglected homes that are structurally sound and located in appealing neighborhoods. Since cosmetic repairs alone can add at least $2 in market value for every $1 spent, you’re likely to see the best returns on affordable upgrades such as new flooring, paint, fixtures, cabinet refinishing, and landscaping.
Currently, homeowners are allowed to sell their primary residence only once every 24 months to keep the profits tax-free. If you’re able to spot a diamond in the rough, and you’re willing to endure a couple years of living in a work-in-progress, it could pay off in substantial tax benefits come time to sell.
To learn more about the tax opportunities of buying and selling fixer-upper houses, contact Taxation Solutions, Inc. We’re here to help with your tax questions in Indianapolis and beyond!