All Forum Posts by: Bao Vu

Taxes are calculated on the gain (e.g. sale price - purchase price + expenses, broken down fairly clearly by @Jake Baker) not just on the sale price.

The tax treatment on sale of a Primary Residence vs. Rental (buy and hold) vs. Flips can be significantly different depending on if you meet the IRS requirements for the property to be considered a Primary Residence vs. Dealer vs. Investor.

• Primary Residence is taxed as short-term or long-term capital gains on sale and it may qualify for Sec 121 Exclusion
• If you are classified as a Dealer you will pay ordinary income taxes on sale. This may include self-employment taxes as @Kevin Gonzalez mentioned, but this can depend on if you have S-Corp or not.
• Investor pay capital gains taxes. Generally lower than ordinary income taxes on sale depending on your tax bracket and holding period.

Whether or not you are considered a Primary Residence vs. Dealer vs. Investor depends on a number of factors including a.) Did you live in the property during renovation b.) how frequently you renovate and sell properties b.) your intention at the time of purchasing the property.

I can’t tell from your post if you lived in the property during renovations, if this is your 1st flip, if you rented it, or your intent at purchase and these are important details that have significant tax implications.

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*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

@Bao Vu 

From a bookkeeper's perspective, here's how this should be reflected:

Tax Basis for the Flip:
For tax purposes, the purchase price of the property you flipped (bought in 2023, sold in 2024) will count as part of your cost basis. This includes:
- Purchase price
- Renovation costs
- Closing costs (buying and selling)
- Holding costs

These expenses offset the selling price to calculate your taxable gain. 

QuickBooks Setup:
For flips, I’d use the following accounts:

Flips in Progress (Inventory)
FIP - Purchase Price
FIP - Buying/Closing Costs
FIP - Rehab Costs
FIP - Holding Costs
FIP - Selling/Closing Costs

Real Estate Cost of Goods Sold (COGS)
COGS - Purchase Price
COGS - Buying/Closing Costs
COGS - Rehab Costs
COGS - Holding Costs
COGS - Selling/Closing Costs

At year-end (e.g., Dec 31, 2023), move flip costs to inventory and back into COGS on Jan 1, 2024. This ensures your books match the timing of your taxable income.

It sounds like you're off to a great start—make sure everything is categorized correctly and consult a CPA to confirm your setup.

Quickbooks most likely isn't pulling in the purchase price of the property. You're in the business of flipping houses, so any self-employment taxes on the ordinary income most likely aren't being calculated in QB. I honestly wouldn't even trust anything QB is telling you when it comes to taxes.

You're in a partnership, which acts like a conduit to pass through the income/loss of the activity to the individual owners. So the actual tax bill is going to be impossible to predict without looking at the individual owners' personal tax situation.

How much of a gain do you think you made on your first flip?