Question for Flippers - Taxes

[Greg P.]

Hello, I am wondering how many of you save on taxes. I met with a accountant and he is saying over 250k a year is at a income bracket of around 33% plus there is state tax and social security, etc. Sound like a lot and could be up to 40% or so when everything is said and done. Is there any strategies or methods of saving on taxes when flipping and does buying rentals or commercial property help offset this type of quick flipping income?

Thank you.

[Steven Hamilton II]

J Scott, Happy to settle this.

Brian P and Greg P.,

If you are flipping properties as you said, the property will in fact be inventory. All holding costs and rehab costs as well as marketing costs for that property will be involved in cost of goods sold(COGS).

Whenever flipping a property they are all taxed at ordinary rates. You will also pay any social security and medicare due if applicable(The amount depends upon the type of entity that does your flipping.

As a rehabber, you investment is a business. Rehabbing is not the same as buying and selling stocks.

There are certain exceptions to this rule.

Three examples and these are about the only ones.:
1. You are someone who buys a house as a residence, lives there one to two years and moves. If you hit the two year mark you do not have to pay capital gains on the first 250k (500k if Married filing joint).

2. You purchase a property rehab it, sell it and don't do it again.

3. You buy one property, hold it, do nothing to it and sell it. That is a short or long-term gain. This would mean you are simply trading properties as though they are stocks.

In regards to these: If you do it once and do not intend to do it again. The moment you even contemplate a second time, you are in a business activity.

-Steven the Tax Guy

Your guide to IRS laws, rules and regulations.