The formulas they  use is for ordinary Joe's buying their own homes, but totally bogged down when applied to serious investors.I ran into this some years back, in 1993, when interest rates came down from rates of 15% to 7%.

Not doing out of the ordinary.

The argument is that this is essentially ordinary income but that it is taxed at capital gains rates.

The AGI limits on using passive losses to offset ordinary income limit this strategy.

Short answer: If you flip houses, you'll pay pretty much the same taxes as you would on ordinary income.

Two, I separate ordinary business activity from my passive activity.

They have only owned the house for a short time so any gain would be taxed as ordinary income which means that they would pay tax on any unreported payments in the form of a higher gain on the house.

Just disclose to all parties.Blake, there are many transactional funders, including myself, but most do not provide many options, including anything out of the ordinary such as over 24 hours, with different title companies, etc.

(or whatever other breakdown is specified in the operating agreement) Income from flips is considered ordinary income.  

The depreciation you take each year on the rentals (or what is allowed, if you don't take it or take less) reduces you basis and increase the gain when you sell.Even if you're not a RE pro, you can deduct the passive losses against ordinary income if your AGI is under $100K.