Tax Question for REA/FLIPPER

[Mathew Allen]

Hello, just starting my tax return for the year.  I realize I may need to go the route of a CPA, but I'm trying Turbo Tax first and looking for advice.  

My question is this:  I'm a part-time real estate agent/investor/flipper.  We flipped our first house this year netting a profit.  We owned the house 11 months, so it's taxed as short term capital gains (ordinary income).  Can I claim the income from the flip, as well as commission from the few houses that I sold this year under a business separate from my normal W-2 income?  Basically this would allow me to take advantage of the home office deduction and several other deductions to get the taxable income down.  Thanks in advance!

[Linda Weygant]

It sounds like a CPA may be your best choice as you're about to go down a rabbit hole that can get you in some trouble with the IRS.

As a flipper, the income from the sale of the house is NOT capital gains.  It is Self Employment income.  The IRS tends to view house flipping as no different than assembling widgets and it is taxed the exact same way.

Capital Gains treatment is available only for property held for investment or in the course of business (such as a rental or sometimes undeveloped land).

That said, from a tax standpoint, you can and should report the flipping activity and your commission activity separately from your W-2 income.  I personally would report them on separate Schedule Cs, just to keep them obviously separated from a recordkeeping standpoint, but the IRS won't care if you lump them together.

Make sure you fully understand the limits and exceptions to the home office deduction as well as any other deductions you are considering taking as you must meet all the criteria set out by the IRS.