Capitol gains tax, SE tax for a part time rehabber?????

Hi all,

The question(s) I have are concerning taxes needed to be paid by a part time rehabber.

I plan on rehabbing and immediately selling 2 projects my first year. At the same tme I will have a full time job, and will be receiving retirement pay from the military. I don’t plan on holding the properties for a year and understand I will have to pay the capital gains tax, if I havent misunderstood previous post, of 15%.

But what about self employment tax on the property? Will the properties be consdered an investment or income and be taxed again with SE tax?

As you can see my ID has student in it, so please school me! Thanks

Nope…you misunderstood…

Short-term Capital Gains are taxed the same as regular income (so it depends on your income, filing status, etc.). Add to that the SE Tax…and don’t forget your state may want a piece of that!

Properties used for flips are “inventory” to your sales business not “investment/income properties”


Forgive me for being ignorant, but thats why I am asking huh… so even though I have a full time job-not flipping- I could still have to pay SE tax??

Texas does not have a state tax…is there another state tax dealing with real estate out there?

Thanks for your help Keith.

If you are flipping property, the profit is ordinary business income – not capital gain (short or long). The profit is always ordinary business income regardless of your holding period. Holding your flip longer than one year does not change the tax rate.

Yes, future retiree, property flipping is a business. In the absence of a formal business entity, you are a sole proprietor. Even if you do your rehab flip in your spare time, you are operating a sole proprietorship. If you have a full time job, then you are just moonlighting.

The profit from your rehab-flip business is also subject to self-employment income taxes. However, this tax is really just a payroll tax on your self-employment income. This “payroll” tax has two components, social security and medicare (just like the withholdings on your salary). The social security tax rate is 12.4% while the medicare tax rate is 2.9%.

The good thing about have a full time job in addition to your rehab-flip business is that there is a cap on the amount of income subject to social security tax – about $90K last year, I have not looked up the number for 2007. This means that if you earned $75K in your day job, only $15K of your rehab-flip profit will be taxed for social security purposes. After you have paid the social security tax on the first $90K of income (from all sources combined), any additional income during the year is not subject to social security taxes.

You don’t get the same break with Medicare. All your income is subject to the medicare tax with no cap.

This discussion only applies to federal income taxes.

Is that hypothetical $75K gross or net, Dave? Thx.

When it is your salary, isn’t gross and net the same amount? Your salary is $75K per year, you are paid $75K per year. You get a W-4 that says you were paid $75K during the year.

When it is your rehab-flip income, the tax is computed on the net business income.

Gross and net the same thing? Not for me, at least, not since 1992 when I started my own company. Gross and net have had more than $100K difference in one year for me, hence the question.

Net is what I pay taxes on, not gross, thank God. lol

I.e., I pay $15,000 for materials, and $6000 in labor for a job that pays me $42,000. 42 is my gross for that job, but I’m only taxed on $21K, or my net. Maybe I’m missing something, but my gross and net are far from the same ammount.

Ahhh! Light bulb just turned on. Income is income no matter how you look at it, and you pay the same “pay roll” taxes on the profit (net) as usual. Thanks for breaking it down for me all.

I get that, I don’t get the “net and gross the same amount” thing.

I also realized, I can’t spell amount. lol


Maybe you overlooked the key word SALARY. The point is that there is no NET salary when computing your payroll taxes and income taxes. The tax is computed on what you are paid. As far as your employer is concerned, your gross is your net.

When you are a sole proprietor, your NET business income becomes your self-employment income. The self-employment income taxes are applied