The other day a student asked me, “Marko, you talk about holding properties more than 12 months for less tax and publication. What do you do with them?” And I realized that many of my other students probably had the same question. Let me break it down for you.
If you hold a property for less than 12 months, when you sell it, it’s taxed as ordinary income. That’s why fix and flip investors and wholesalers never really get wealthy – because a big chunk of their money goes to pay taxes. In addition, when you’re wholesaling fix and flip, you have no cash flow. You have no depreciation. You don’t enjoy any of the leverage that real estate investing gives you when you fix and flip or just flip. It’s not a good way to do it.
My way is better because when we buy properties, we can hold them for a longer time. What does that mean? When we hold them for more than 12 months, and sell them, we pay capital gain tax rates, not ordinary income. In the meantime, we enjoy tax savings due to depreciation. Depreciation is a great way to reduce your tax liability. However, you can only use it if you own the property. And remember, the only way to own the property without using your own money or credit is using my Unlimited Funding Program strategies.
So that’s the key to huge tax savings – holding your properties for 12 months, then paying the lower capital gains tax rate.