Rookie tax question

[Wesley C.]

This should be an easy one for someone to tackle, but I'm very new at this. I close on my first investment property next month. Not sure whether to flip it or rent it due to tax considerations. I understand that if I flip I will be taxed at my income tax rate (25%), but if I hold it one year it will be taxed at capital gains rate (15%). Am I correct so far? Also, I'm estimating around $12,000 in repairs to the property whether I flip or rent. How do I go about deducting these costs? If I rent it for a year and then sell it, can I still deduct the $12,000? Any advice is apreciated. At this point I'm open to all options. Forgive me if this has been answered 100 times. Feel free to direct me eslewhere if need be.

[Bill Walston]

Originally posted by Wesley Chamberlin:

This should be an easy one for someone to tackle, but I'm very new at this. I close on my first investment property next month. Not sure whether to flip it or rent it due to tax considerations. I understand that if I flip I will be taxed at my income tax rate (25%), but if I hold it one year it will be taxed at capital gains rate (15%). Am I correct so far?

Not quite. If you purchase a property with the intent to 'flip' it you become a dealer, not an investor. The income will be taxed at ordinary rates regardless of when it it sold as the property is treated as inventory.

If you hold the property as a rental and then sell, some of your profits will be taxed as capital gains.

Regardless of whether you flip or rent, the $12,000 (in most cases) will be added to the basis of the property.