Vacation Rental and Flip: Investment income or

[Jeff Macdonald]

I purchased my first investment property a couple months ago. Initially we were only thinking about it as a fix and flip, but now we are considering giving it a try as a vacation rental for a few months. My wife and I purchased this without a LLC (we will be setting one up for our next house, for sure).

Question, if our intent is to try it as a vacation rental for a few months (and do so); and if we realize that it does not work well as a vacation rental and then sell it about 6 months after purchased, would we be able to make a good case for being taxed at capital gains rates? I think the correct terms are, would this income be described as investment (capital gains rate) or an active business/dealer income (regular income + self-employment taxes)?

Thanks!!

[Lance Lvovsky]

If you sell the property within 12 months, then the gain is subject to short term capital gain rates such are the same ordinary income rates. Assets held for longer than 12 months are taxed as long term capital gains, and receive capital gain tax rates.