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To get a complete list of possible tax breaks, talk with a tax professional who can explain the more nuanced rules for each deduction.
Flipping Houses Tax Example
Calculating your potential flipping houses tax can seem overwhelming if you’ve never done it before. Look through the example below to get a better sense of how it works and what your taxes may look like in the future (assuming you’re filing as single or married filing separately).
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Short-Term Capital Gain |
Long-Term Capital Gain |
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Flipping Houses Cost:
Resale price: $140,00 Total revenue: $40,000 Taxes:
Total Profit: $24,280 ($40,000 - $9,600 - $6,120) |
Flipping Houses Cost:
Resale price: $140,000 Total revenue: $40,000 Taxes:
Total Profit: $40,000 |
As you can see, there can be large rewards for being classified as a real estate investor and holding a property for longer than a year. Real estate dealers can also receive a greater profit with deductions and other exclusions as well.
IRS Publication for Flipping Houses
Between gathering all of your relevant financial information and determining which forms you need to fill out, tax season can be a headache if you’re not prepared. Look through the different IRS tax forms and publications below to get a better sense of which may apply to you.
- Schedule C (Form 1040): If you’re an LLC or real estate is your profession (in other words, if you’re classified as a real estate dealer), fill this form out to record profit and loss from the year’s activities.
- Schedule D (Form 1040): This form is to report the sale of a capital asset. If you’re classified as a real estate investor, you’ll use this form to report gains or losses from fix and flips and any other real estate ventures.
- Schedule E (Form 1040): If you’re registered as an S Corporation, you’ll use this form to fill out your business’s profit and losses for the year (as an S Corporation you’ll be subject to the typical income tax, but won’t have to pay self-employment tax).
- Section 121 Exclusion: If your fixer-upper was your primary residence for at least two of the five years before you sold it, you can exclude up to $250,000 (or $500,000 if filing a joint return with a spouse) of any gains attained once sold.
- 1031 Exchange: If you opt to reinvest your fix and flip gains into a similar property, you can defer paying taxes on those gains until a later date. However, keep in mind that the 1031 exchange makes your gains tax-deferred, not tax-free.
While understanding how to report flipping a house on your tax return (and all of the nuances associated) can be beneficial, you don’t have to learn everything all at once. Talk with other flippers who have successfully reduced the amount of taxes they owe as well as tax professionals who can help you through the process from start to finish.
Most of all, don’t let flipping houses tax stop you from further diversifying your portfolio. If you’re ready to maximize your profit even further, contact Revolution Realty today to secure a fix and flip loan with a competitive rate and quick closing period.
