FLIPPING HOUSES - TAX IMPLICATIONS-

-Depending on whether you do it as a sideline or as a full-time business, the tax treatment would differ. If it is a sideline then you could consider it as an investment and sales would result in capital gains or losses. If you own it more than a year, then it would be a long-term capital gain and profits would not be taxed at more than 15%. A short-term gain would be taxed at your regular tax rate. You would capitalize taxes and interest and add them to the basis of the property.

If it is a year-round activity rather than a sideline, then you would be operating a business. Those fixer-uppers would be considered inventory rather than capital assets. Your gains would be taxed as ordinary income. Costs of upgrading the property would become part of ‘inventory’ and would be deducted as a cost of sale when you sell the property. You could write off the taxes and interest you pay while you hold the property.

Income from this type business would be subject to 15.3% self-employment tax

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