If you’re a fan of HGTV’s “Flip or Flop” series, you probably have considered flipping houses as an investment strategy or business. After all, the shows make it seem like renovating houses is a quick and lucrative process to make a great deal of money in a limited amount of time.
But just like these TV shows leave out many boring details, they may also ignore the tax implications that come with the sale of property. This post will highlight a couple of things flippers should consider.
Capital gains – You probably already realize that the sale of a property is a taxable event, but how much in taxes to be paid generally depends on how long you hold the property. If it is sold within one year of acquisition, chances are that it will be subject to short-term capital gains taxes. If the property is sold after one year of purchase, long-term capital gains may apply.
Business income – Also, depending on the IRS’ determination of the transaction, it could be taxed as business income as opposed to investment income. Business income may be subject to additional taxes compared to investment income. While it is unclear how many houses must be flipped within a particular year to be considered business income, the totality of the circumstances will likely affect how the IRS characterizes such income.
If you have questions about the tax implications of a potential or current home renovation project, an experienced tax attorney can advise you.
The preceding is for informational purposes only and is not legal advice.