Capital gains tax on a flip

[Edgar Martin]

I understand capital gain taxes vary from state to state on a fix and flip.

My question is are taxes assessed on the total sales price of the home or only on the profit made from the home?

Ex:

Price purchase of flip: 175k

Reno costs: 25k

Final sale after completion: 225k

Would capital gains tax be charged on 225k or profit of 25k?

Thank you in advance.

[Linda Weygant]

First of all, flipping is not subject to Capital Gains taxes.  It is usually considered to be ordinary income and may also be subject to Self Employment tax.

Second, the taxes on this structure do not vary from state to state.  That is, there is no difference to how the taxes are assessed.  The difference is the rate.  For example, Colorado is 4.63% while California can be up to 8.5%

In your example, the taxes would be assessed on the profit of $25k (at the federal level and MOST local levels), however there are some jurisdictions (such as the City of Philadelphia) that also have a Gross Revenue Tax where the tax would be assessed on the $225k number and also a Net Profits Tax assessed on the $25k.