GMAC Real Estate The Tax-Free Fixer-Upper
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The Tax-Free Fixer-Upper

Takeaways

  • IRC 121 is a great tool to become a "serial seller."
  • Buy a distressed property and live in the home while doing the repair and remodeling.
  • After two years sell the property with tax-free real estate capital gains through IRC 121 and repeat the process.

Did you know?

  • Getting to know, and using, the same mortgage broker has long-term dividends.
Serial sell your way to profit The Taxpayer Relief Act of 1997 brought to life IRC 121 allowing you to sell your primary residence with a large amount of capital gains exempt from taxes. Using IRC 121 some people have become “serial home sellers.” They buy a house in need of refurbishment, live in the house for two years to meet IRC 121 occupancy requirements while the repairs and remodeling are going on, and sell the house at great profit. Profit that is tax-free up to $500,000 for couples and $250,000 for singles.

One problem with this concept is a lot of lenders are leery of approving mortgages on houses in poor condition. One way to work around this is to buy the home financed by the seller, if the seller is willing to go that route. This way you avoid any credit reports and hassles with mortgage companies. And the terms of the sale, like length of the loan and the interest rate, are negotiated directly between you and the seller.

Using a Trusted Mortgage Broker

Many sellers just won’t finance a sale themselves. This is where a trusted, and established mortgage broker comes in handy. This professional likely has contacts with lenders who understand the owner-occupant variant for an investment home, and your broker might even be able to find a 100% financed loan with no money down. This way the money you intended to spend on a down payment can be applied to the rehab of the home.

Through the magic of IRC 121, you can buy a challenged property, get it up to market condition and sell that house with most, if not all of the capital gain exempt from taxes. And you can repeat that process once every two years, pocketing that tax-free income over and over again.

Search for Second Homes for Sale

To search for a selection of second homes for sale, please visit lifestylehomesearch.com, or visit the website of a GMAC Real Estate Office that serves the area where you'd like to buy a second home. To learn more about buying Second Homes or Vacation Homes, explore the rest of this section, or contact a GMAC Real Estate Agent.