Flip house capital gains tax

[David McPhail]

My question is what are my options for capital gains taxes? I am going to sell a flip house and profIt about $30k. Do I roll this into a new flip house, purchase investment property or down payment on the purchase of my own residence? Also I live in Texas?

[Richard Sherman]

You need an accountant!  I am not one, but I will give you what I THINK I know.

 Flipping is a BUSINESS and houses are your inventory, so everything you know about 1031s etc DO NOT APPLY.    Now, if you are using the term broadly, that you bought a house, did repairs with the intention of renting it, but saw that prices were high and decided to sell after 1 year, maybe not, you might be able to use 1031 etc.

I would talk to an accountant, will be very worth it for a couple hundred bucks

[Michael Ablan]

Definitely speak with an accountant.  The only way to avoid paying tax on a gain is to 1031 exchange it into a similar property. 

[Jason D.]

@David McPhail if you're flipping, you pay short term capital gains. There's no way around it.

[Ashish Acharya]

@David McPhail, 

@Richard Sherman is absolutely right. 

Flipping does not generate capital gain. It will be an ordinary income taxed at higher rate. 

Upside is that capital gain does not qualify for new 20% “pass through deduction”, but flipping income does. 

What we need to understand is that, unless the profit you generated is used within the flipping activity such as payroll for your acquisition managers or marketing expenses, you will have to pay taxes on the the cash you generated via flipping. 

Yes rolling a profit into another flip house is a cost of the business but it will generate more profit on top the profit you already had assuming it’s a good deal. so you will have more taxable income,  not less as you think.

Using the profit for personal purpose does not decrease your taxable income,ever. 

You will be paying around 40% on taxes. You could have saved 15% self employment taxes after you salary, if you had run your flip via s Corp. 

Yes, you can make this complicated and save taxes, you just need to sit down with your professional. 

[Dave Foster]

@David McPhail, Yep,  You cannot 1031 if your primary intent in purchasing the property is for resale (fix n flip).  1031 eligible property is property you purchase with the intent to hold for productive investment use.  So you could adjust your model and buy, fix, rent, and evaluate after a bit.  Even through a refinance in the middle so you don't slow your model down much.

Or a very interesting exercise would be to pro forma your taxes at ordinary income with the 20% pass through deduction vs cap gains vs costs of holding and 1031ing.

[Linda Weygant]

Once more for the people in the back...

FLIPPING IS ORDINARY INCOME, NOT CAPITAL GAINS.  There are a few exceptions when intent to hold may come into play, but by and large, your flipping income is going to be subject to ordinary income tax and probably self employment tax.

It's not capital gains and you don't get out of the tax through 1031 or investing in something new or anything else.  It doesn't matter if you hold it more or less than a year.

The IRS does not care if you buy a house, fix it up and sell it or you buy bread, lunch meat and mayonnaise and sell sandwiches.  To them, it is the exact same business model.  You are simply buying and selling improved inventory.

According to the IRS, flipping is NOT investing.  For the most part, you have just bought yourself a job, whether you're swinging the hammer yourself or supervising the hammer swingers.

[Yasuha J. Dorce]

Originally posted by @Linda Weygant:

Once more for the people in the back...

FLIPPING IS ORDINARY INCOME, NOT CAPITAL GAINS.  There are a few exceptions when intent to hold may come into play, but...

 Real helpful thanks Linda. 

[Basit Siddiqi]

@David McPhail

As others have mentioned.

Flipping, the act of buying a property with the intent of selling it in the near future is considered ordinary income and not capital gain. You will not receive a preferential tax rate on the income and will be taxed at your marginal tax rate. 
The good thing is that you live in Texas and as long as the flipped property is also in Texas that you will pay no state income tax.

[Jerod Howard]

so can I build sell,  use profit to build and sell,  then dump all the proceeds into a rental ?

[Ana Klein]

@Linda Weygant your post on point! NOT capital gains

[Michael Plaks]

Originally posted by @Jerod Howard:

so can I build sell,  use profit to build and sell,  then dump all the proceeds into a rental ?

Yes, you can. But the profit from selling your builds will be taxable as ordinary income + self-employment tax. Whatever is left can be invested in rentals.

[Brandon Borchers]

@Basit Siddiqi

I understand from the many comments, flipping is business income listed on Schedule c. For some reason I cannot figure out, I have no idea where to enter this income on the schedule.

Here is the breakdown. I owned a SFR in my single member LLC. I owned this property for 17 months. I did not receive a 1099S from the title company, but do know I need to report this. Do I enter this as "other self employed income (1099k, cash, check). Or would I enter this as sale of business property? Or maybe somewhere else. Would entering my gross proceeds, which I could essentially pull from my hud 1, work as a reference?

Or am I totally off base?

I am using Turbo tax and know I should have a CPA. Sorry.

[Basit Siddiqi]

Originally posted by @Brandon Borchers:

@Basit Siddiqi

I understand from the many comments, flipping is business income listed on Schedule c. For some reason I cannot figure out, I have no idea where to enter this income on the schedule.

Here is the breakdown. I owned a SFR in my single member LLC. I owned this property for 17 months. I did not receive a 1099S from the title company, but do know I need to report this. Do I enter this as "other self employed income (1099k, cash, check). Or would I enter this as sale of business property? Or maybe somewhere else. Would entering my gross proceeds, which I could essentially pull from my hud 1, work as a reference?

Or am I totally off base?

I am using Turbo tax and know I should have a CPA. Sorry.

I just took a look at schedule C and I didn't see a line that you referenced "other self-employed income(1099K, cash or check)" but yes flips do get reported on schedule C. Flipping is a unique activity for tax purposes since the houses are considered "inventory".

I think Turbotax does have a customer support chat/phone call for you to ask your questions.

[Brandon Borchers]

@Basit Siddiqi

Thanks a lot for looking into that, I was able to get my question answered. Thanks for the quick reply.

[Teri Feeney Styers]

@Basit Siddiqi Not Schedule C - Schedule 1 Line 5. The LLC should have filed its own taxes and passed the income through.

[Natalie Kolodij]

Originally posted by @Teri Feeney Styers:

@Basit Siddiqi Not Schedule C - Schedule 1 Line 5. The LLC should have filed its own taxes and passed the income through.

If it's a single member LLC it goes on his 1040 on schedule C.

[Natalie Kolodij]

Originally posted by @Brandon Borchers:

@Basit Siddiqi

I understand from the many comments, flipping is business income listed on Schedule c. For some reason I cannot figure out, I have no idea where to enter this income on the schedule.

Here is the breakdown. I owned a SFR in my single member LLC. I owned this property for 17 months. I did not receive a 1099S from the title company, but do know I need to report this. Do I enter this as "other self employed income (1099k, cash, check). Or would I enter this as sale of business property? Or maybe somewhere else. Would entering my gross proceeds, which I could essentially pull from my hud 1, work as a reference?

Or am I totally off base?

I am using Turbo tax and know I should have a CPA. Sorry.

 I don't know how to make turbo tax do the right thing

But your sales price on the flip is your gross income 

The cost of the house and all it's renovations and expenses are Cost of goods sold 

[Matthew Hurst]

Every situation is different - here is some general information on whether selling real property is taxed as capital gains vs ordinary income + self-employment tax.

There is a 9-factor test.  Apparently it's more complicated than just whether the property was rented.  

https://www.thetaxadviser.com/...