If you're looking to turn a quick buck on a real-estate transaction, accountant Bill Rucci has some words of warning: "It may be quick, but it also may not be as lucrative as you first thought."
Wednesday January 4, 6:00 am ET
As housing prices in many parts of the United States skyrocketed, "flipping" -- buying a property and then quickly reselling it at a higher price -- has become the hottest investment trend.
Many people view it as more lucrative than the stock market. Plus, flippers enjoy the tangible aspect of the deal. Since real estate is "real," you can look at a property and neighborhood and get a personal take on whether it's a good investment.
But if you're not careful with your real estate flips. your investment
strategy could produce a sizeable payoff for an unintended partner: the Internal Revenue Service.
Real Estate Tax Confusion
Rucci, a CPA and partner in the Boston-based accounting firm Rucci, Bardaro and Barrett, says that many of today's real estate investors go into the transactions completely uninformed.
"There is a huge misconception on the part of some people who think they can buy a residential home, not necessarily their personal residence, fix it up and then sell it; and then get what we used to call 'the old rollover provisions,' where you used the money you made to buy another piece of property for more than what you sold," says Rucci. But, says Rucci, there are two problems with that approach. "One, that rule existed for personal residences only; and two, it doesn't exist anymore."