Need Help Please...
Aside from Capital Gains Tax and Closing cost, what other expenses we need to consider that will lessen our profit when flipping properties. Thanks in advance.
Aside from Capital Gains Tax and Closing cost, what other expenses we need to consider that will lessen our profit when flipping properties. Thanks in advance.
There are no capital gains taxes on flipped property. When you are property flipping, the cost of goods sold is subtracted from the net sale price.
The result is your taxable profit. Property flipping profits are reported on Schedule C (1040), and, taxed as ordinary income. Additionally, your net profit from Schedule C is used to calculate your self-employment income taxes on Schedule SE.
Dave T, thanks so much but if you can clarify more with my below questions then it would be great.
When you say "no capital gain taxes on flipped property", do you mean no CGT on investment properties (as opposed to a property I lived in for one year and sell it)?
If I understand it clearly,
gross profit - closing cost = net profit
Then
net profit = income
to be filed on my schedule c and taxed as ordinary income.
What I don't get is this, since I'm already being taxed in that profit as my income why would i still be taxed in schedule se.
Doesn't this look like a double taxed.
Thanks again and I'm really looking forward for any inputs. Thanks so much.
Quote:When you say "no capital gain taxes on flipped property", do you mean no CGT on investment properties (as opposed to a property I lived in for one year and sell it)? No, I am not saying that. Investment property is property held for the production of income (rental use) or for future appreciation. You are doing neither with the property you are flipping. Instead, you are (in effect) selling merchandize at a markup -- running a business.
The income to your business is ordinary income. You report your business income on Schedule C (1040).
Quote:What I don't get is this, since I'm already being taxed in that profit as my income why would i still be taxed in schedule se. Doesn't this look like a double taxed. On your job, you get a paycheck that has had withholdings taken out of your gross pay. These withholdings are for income taxes, social security taxes, and medicare taxes.
You also have to pay all these taxes on your business income. Schedule C takes care of the income taxes, while Schedule SE handles the social security and medicare taxes. [ Edited by DaveT on Date 05/14/2004 ]
I believe if you hold it for at least a year (e.g. rent out) before reselling you would incur Capital gains vs. schedule C income. Not a true flip but you may run the numbers on both scenatios to compare. I would consult with your cpa.
That was crystal clear. Thank you so much for elaborating more.
good info on taxws come time to fill next year