Flipping and Capital Gains

A common dilemma for real estate investors ismay view that this strategy is your "trade
the issue of flipping and taxes. In this article, weor business" and therefore the profits you
look specifically at the tax issues associated withmake are subject to ordinary income and
flipping and capital gains.In recent years, peopleself-employment taxes. And you don't want
have been looking at the real estate market asthat.Secondly, if you want to employ other
they once looked at the stock market, eyes filledstrategies to avoid big taxes like installment or
with dollar signs. Flipping became a popular realstructured sales or private annuity treatment
estate investment strategy to make fast cash.while flipping, you can't. Spreading tax out doesn't
However, one thing that people forgot in theirwork because the property is not labeled
haste to play the game was to be properlyinvestment property. This again goes back to
prepared with the knowledge to avoid paying highissue of holding periods and intention of sale.If you
taxes on their profits. Towards that end, here'sare hoping to use the 1031 exchange strategy as
some noteworthy information about taxes as youthe approach for flipping and capital gains, again
think about your flipping strategy.First, in order toyou will find yourself between a rock and a hard
avoid overly onerous "ordinary incomeplace. 1031 exchanges are reserved for
taxes" on flipping properties you must haveinvestment properties only and if you can prove,
the property treated as a capital gain. Most often,through holding periods and intention, that the
if you sell the property in less than a year, youproperty is a capital gain or investment property,
will be taxed at the ordinary income tax rate,you will not be eligible. The IRS supports investors
which can be in excess of 35 %. Only whenand savers, not speculators and gamblers.Once
you've held the property for more than a year,most of your tax deferral options are exhausted,
does the long-term capital gains tax of 15 % (foryour last resort for flipping and capital gains may
most tax payers) come into play. In order tobe to have that property re-characterized to a
have the property treated as a capital gain youcapital gain property by moving in to it and
must show that you had no intention of flippingtreating it as your personal residence. It may
that property. Ironically, this could entail holding thework, but holding even longer holding periods
property for this extended period of time whichapply.In conclusion, flipping can be an exciting and
counteracts the whole point of flipping - which isfast way to make money. But when it comes to
to make money fast.Also, it's not only abouttaxes it is hard to make flipping and capital gains
"when" you flip, but about "howwork together.
often" you flip. If you flip too often, the IRS