Comments on: House #2: Final Analysis

By: J Scott

J Scott — Fri, 24 Oct 2008 19:39:00 +0000

I’m hoping my CPA is worth what I’m paying him, but I’m not sure if I’ll be subject to self-employment taxes or not. The bright side of only closing on one or two properties this year (from the selling side) is that I’ll have the opportunity to dig into the tax repercussions before next year without taking too much of a hit, and hopefully do things better next year when I have more money on the line.

By: Hakrjak

Hakrjak — Fri, 24 Oct 2008 19:32:11 +0000

Have you found out if they’re going to tax you at 35% + 15% for social security and medicare, or do you get to skip paying the self employment taxes? I haven’t done a short term deal yet, so I’m curious how that’s going to hit my pocketbook. It’s looking like the government gets about 50% of your profits when you go to sell, which sucks IMO…

- Hakrjak

By: J Scott

J Scott — Thu, 23 Oct 2008 22:23:31 +0000

Unfortunately, this income will be taxed as “ordinary income,” meaning I’ll likely lose up to 35% in Federal taxes plus State tax.

Not an optimal tax situation, but unfortunately there’s little way around it in this business. Now, once I start holding houses as rentals, those will likely be taxed more beneficially, but until then, I’ll be losing a chunk to the government on each sale.

By: MBS

MBS — Thu, 23 Oct 2008 20:42:21 +0000

Just curious about the tax and capital gains costs here, since you didn’t own the home for two years or more.

http://www.fool.com/school/taxes/1998/taxes980212.htm

By: J Scott

J Scott — Tue, 21 Oct 2008 23:06:52 +0000

Exactly!

Oh, and thanks for the kind words everyone…

By: Rm89004

Rm89004 — Tue, 21 Oct 2008 16:27:08 +0000

I think I get now.

Under Holding Cost – Mortgage you put $530.73 for the first month you paid. But, since you didn’t make the second payment before closing, the interest was added to the loan payoff balance which makes it higher than the original loan amount. This was unusal because of the quick turnaround.

By: J Scott

J Scott — Tue, 21 Oct 2008 13:30:53 +0000

The starting balance on the loan was $54,900, and my monthly payment was about $500. Of that $500, much of it is interest (it was a 30 year loan, and that’s how they work). In fact, my interest accrual was about $12 per day.

So, by the time I made my first payment, almost $360 in interest had accrued, taking my total loan payoff to $54,900 + $360 = $55,260. When I made my first payment of $500, my loan payoff amount again dropped below $54,900, but not by much.

As the month of October moved on, my daily interest accrual again crept past the original loan value. Had I made my November 1 payment, my loan balance would again drop below $54,900, but I never made that second payment.

There was no pre-payment penalty, but I still ended up paying off more than the original loan due to the interest accrual. Does that make sense?

Btw, I had the same question when I first saw the loan payoff amount.

By: Rm89004

Rm89004 — Tue, 21 Oct 2008 12:13:05 +0000

Jason,

Looking over the numbers I noticed that the purchased loan – starting balance was $54,900 and loan payoff amount was $55,205.29. Is this the result of pre-payment penalty?

By: Rm89004

Rm89004 — Tue, 21 Oct 2008 11:36:37 +0000

Congrats! Your ROI will be in even better when your wife gets that RE license. You will save on both the purchase and sale.

Thanks for sharing Jason. I have learned a great deal in the last few months.

Again, great job!

By: maestro amy

maestro amy — Tue, 21 Oct 2008 00:28:01 +0000

Congratulations, Jason! Sounds like you “got it goin on” already! =)