The tax ramifications for flipping are somewhat complicated. That is why I need to become enlightened. Perhaps someone else could explain this in a clear way. I would like to hear this also.
there is only two option to report that income/profit. Its either ScH C (of 1040) as a business in which case you get to pay 6.2% SocSec. or ScH D as a short-term cap gain. There are some test to determine whether an activity can be taken as a Sch C, if you have signifcant W-2 income (i.e. full-time job or something close to it), you will fail the test and end up going the Sch D route.
In most cases, the LLC is/would be a disregarded tax entity and not change anything (unless you elect as a corporate entity) which is a whole different scenario of tax.
check over in asset protection forum as tax treatments are extensive discussed.
Thnaks for that info. I will go take a look.
That went over my head! Could you talk to me like I’m 2?
Thanks,
Tanya
The book is E-Myth (only) by Michael Gerber
Good Luck!!
Yes, I did, but I used other peoples efforts to get the work done…
You don’t have to do it all, you just have to Lead it.
I have a property that I am currently working on. It is my first such endeavor. I have done 90% of all work myself - and it has taken too much time. I’ve had over $7000 in carrying costs, and, see that I could have paid for some work to be done, had it completed quicker, & paid less in the long run.
You want to be able to turn the property around within a few months. Any work you plan to do on a rehab will cost you more than you 1st thought, and will take you twice as long to complete as you first thought.
I am much more informed now about time and money, and, will do it better and faster with my next property.
Here is the easy break down.
If you buy and sell the property within 12 months you get taxed on the financial gain as if it were regular income (i.e. at your normal tax braket rate).
If you buy and sell the property in a span that is greater than 12 months (i.e. you bought it in 2005 and sold it in 2007) then you get taxed at the ‘Long Term Capital Gains’ rate of 15%. This is irrespective of your normal tax braket rate (i.e. someone who makes $200k per year pays the same 15% on this gain that someone who makes $20k per year would).
If you want, we can discuss the depreciation and other expenses that can help offset the tax ramifications of holding the property (depreciation helps if you hold, if you sell it doesn’t since your gain is based on the value of the depreciated asset) or other expenses to offset the gains.
Here’s just a few finer details to add to DFWs post:
On short-term holdings, This holds if you have a full-time job/income source. (especially if W-2 income). If not, it can get into a “grey” area of the tax code whether you owe self-employment taxes on the income (hint: you definate would want to consult a tax professional).
As for long-term, there is a 10% bracket but your income would have to be pretty modest; also on the other end, if you have a pretty solid income in the $150K+, you could get pushed into Tax Hell known as AMT (alternative mininum tax). AMT could cause you to pay a higher rate. For most folks, you will have a 15% federal liability.
I’m working 40 hr week and helping a professional investor (subdivisions / commercial - you name it) 20 - 25 hrs a week. It’s a low risk way for me to gain tons of experience. I have a wife and two teens who are just about to get their drivers licenses. It’s crazy right now, but I really enjoy it. The guy I’m working for is great. He’s very modest, but really is a pro and is very concerned about treating his people right. I have lots of hobbies that I’m not doing, but I don’t miss them at all.
I do this full time and my only recomendation is DONT DO IT. STAY IN YOUR NORMAL LIFE AND KEEP YOUR SPOUCE HAPPY. ;D However I am getting married to the woman I started this all with in 2 months HMMMMMMMMMMMMM maybe its not so bad after all. On the other note. I used to work 48 hours a week and got paid $550 take home a week .Now I work about 80 hours a week and pay myself $550 from appreciation . But my friends think Im a 40 year old retired realestate tycoon. AHHHHHHHHHHHHH the value of nostalgia ;D