How does capital gains tax on real estate work?

[Galit Garsiel]

When you sell a house, buy a new one, flip, and sell, when do you pay capital gains tax on real estate? When you buy the new house, or when you sell the new house? (After selling the first house, that is).

[Katherine Serrell]

CPA here...First off, it depends on if the house you are selling was at any point in time your primary residence. If you owner-occupied for 2 years out of the last 5, you will likely not pay any capital gains tax. 

On traditional flips, you will normally pay ordinary income tax on any gain upon the sale since this is considered "active income" which means you pay whatever your individual income tax rate is on the profit.

When it comes to flipping, there is so much involved from the tax side that you really need to talk to a good CPA that specialized in real estate and pay whatever they want you to to help you time things correctly and structure the deals so that you win. It will save you literally thousands and will act as an insurance policy in the event you get audited since someone else did your taxes and you didnt throw them into turbotax and hope for the best.