Taxes Associated with Flipping Houses

[Bryenne Korte]

Hi BP! I'm hoping someone can shed some light on some general tax questions as it relates to fix and flips. I've read several posts and have spoken with a CPA, but I'm getting conflicting and spotty information. I'm very close to purchasing my first property (in Michigan) that should profit $20K. I do have a W2 job as well. Here are my questions...

1. Will I be subject to both capital gains AND self employment on the $20K profit? 

2. If I purchase another home at equal or greater price prior to filing taxes, will the $20K still be subject to these taxes?

3. I've read that holding the property in an S corp is one way to avoid the self employment taxes. I'm a newbie with a W2 who will be flipping maybe 2-3 properties per year on the side....is it worth it to open an S-corp? Is it difficult? Are there special qualifications? 

Thank you in advance!!

Bryenne

[Steven Hamilton II]

You are going to be subject to SE tax on the flip if you do it yourself. If you do it through a corporation you will be required to pay yourself a reasonable salary. That said there are some benefits to using a corporation; however, most of them don't help until you're making much more.