Posted by John Smith, IV on October 16, 2003 at 24:16:57:
Of course your question would only apply if you have income from the listed sources of taxable income in the Internal Revenue Code and the corresponding sections in the Code of Federal Regulations.
taxes on quick flips? - Posted by jay
Posted by jay on October 15, 2003 at 19:05:27:
hi,my name is jay,i live in pa.I was reading an article on this site about how people who flip houses are not looked upon well by the irs.is this true.as far as i understand they look at you like a dealer instead of an investor.If people are making a flip for a profit of 5000,do they tax each deal or all of them annually.Anyone know anything about this.
Re: taxes on quick flips? - Posted by Brent_IL
Posted by Brent_IL on October 15, 2003 at 19:53:08:
Short term capital gains are taxed at the same rate as ordinary income. In general, you have to file and pay taxes quarterly. Get a good accountant that will help you to minimize the paper profit on the flips.
Re: taxes on quick flips? - Posted by E.Eka
Posted by E.Eka on October 16, 2003 at 09:27:58:
The main problem that the IRS has with the dealer/investor designation is the treatment of the flip. The IRS wants you to be a dealer because then your profit from the flip is basically from inventory (of houses), so it is included as ordinary income and you pay tax according to your marginal tax rate.
An investor will be subject to capital gains tax which of course are lower and treated differently then ordinary income.
In the same token, if the IRS contests your assertion that you’re an investor, you’ll most likely lose if you’re a rehab/flipper. Many people confuse and misuse the term capital gains, and they assume that because you purchase a house or two that it’s a capital asset. If your business is primarily buying houses, keeping them short term and then selling them, you are a dealer and you’re in the business of buying and selling property. It’s not an investment for tax purposes, nor is the income generated considered to be passive income. You’re actively participating in the business, so by nature it’s not passive.
If you buy and hold property (rental/lease options)then it could be considered to be a capital asset, and therefore qualify for capital gains/losses. As well as be subject to capital gains tax.
Each case is different, but because there are so many investors/dealers etc. The IRS is considering paying closer attention to their treatment.
I’m pretty sure I’m right. But if someone can dispute it, I’d be willing to hear it. I’m a tax accounting analyst myself, but run it by your accountant to say what he/she says.