CPA input needed regarding unintended flip

[Ludmila M.]

I'm a small RE investor with a few self-managed rentals and about 1 flip per year. No W-2, and for tax purposes I qualify for the RE professional status.

In 2022 I bought what was supposed to be another rental. Half way through the renovations I was approached by a developer/builder who was purchasing a next door lot for new construction. He wanted to assemble it with my property and made me an offer that was hard to turn down. I ended up selling my property as-is, making substantial profit, and then investing it right away into another rental. Question: how do I report profit from this rental-turned-flip transaction - as ordinary income or capital gains? I do have plenty of written communication indicating my intention to use this house as a rental.

In case of suggestions to hire a CPA/tax strategist - I've done it three times in the past with disappointing results. Maybe when I have more rentals I'll try again.

Thanks!

[Michael Plaks]

Based on your story, it's capital gains. But since it was under a year, it's short-term capital gains, taxed at the same rate as ordinary income.

On an unrelated note, 3 times disappointing results of hiring CPAs - maybe the problem is not the CPAs but expectations.