Capital Gains Tax Newbie

Hey, everyone i am new to REI and want to know about tax ramifications on wholesale deals.

Do pay Short Term Gains / Long Term Gains? OR
Do you simply pay regular income taxes?

I know that probably none of you are CPA’s, however i would just like to know what your experiences have been.

ANY :help Would Be GREATLY Appreiciated.

Actually, there are some CPAs on here. One of the most active and helpful is mcwagner. You can search his posts for tax questions on being a landlord or rehabbing & reselling (the latter where you would be considered a “dealer” by the IRS).
Since you’re new to the site, you can use the “search” link that appears just below your name at the top of the page. You can search for a subject, posts from a certain user (mcwagner), or a combination of the two. Good luck and welcome to the site!!

justin is right, you’ll want to hear from mcwagner or from DaveT…but the short answer is probably “neither”.

You’ll probably need to pay regular income tax on the proceeds, plus taxes for the self-employed.


Keith is right on the money.

In the context of these forums, wholesale deals are flips.

Flips are dealer dispositions. If you are doing this in your own name and not under a business entity, then your profits will be taxed as ordinary self-employment income at the federal level and ordinary income at the state level.

Thank you all very much.

I am running my REI Business in an LLC could this make a difference?

How is the LLC treated for tax purposes?

As a partnership. Does this make a huge difference?
It is actually a LLC my wife and i control. Me 90% and her 10%
Would you have recomended that we set up this way? If Not Why?


won’t make a difference.

the passthru partnership income where the partners provide personal service to the partnership is still ordinary income, subject to income tax + SET.

however, be sure you include all of your expenses to offset as much of the revenue as possible: cell phone, advertising, yard signs, MILEAGE is a big one, meals with prospective buyers, REI club membership dues, etc.

you’re only taxed on the net income. every dollar of expense you include saves you ~45 cents in tax.

DaveT is right, the main thing you should be concerned about is writing off expenses to offset the income.
Your car is often one of the larger deductions you can take advantage of. In 2004 I did really well by purchasing a 6,000 pound SUV and getting a huge tax write off - but I’m not sure that loophole is readily available to everyone - and I also don’t think people are jumping to buy Hummers these days.
Pay attention to logging your mileage. It will probably be to your advantage to use the standard rate - I believe the IRS is allowing 50.5 cents a mile for the first 6 months of 2008, and 58.5 cents for the final six months. Someone please correct me if I am wrong here.

Hope that helps!