BiggerPockets

1031 exchange

Worst case, you'll pay your marginal tax rate in Federal taxes and your state/local rate. So, if you're in the 25% marginal bracket and your state/local taxes are 9% (for example), you should keep aside 34% for taxes.

That said, this is tremendously conservative, as your marginal rate will only apply to your highest amount of income (most income will be taxed at a lower rate as marginal rates are on a sliding scale) and you'll likely have deductions that will offset some of the income.

So, if you set aside this amount, you should have some left over come tax time, but should also be good in a worst case situation.

If you want to be more precise, fill out a 1040 with your actual income and deductions after each project and see where you stand. Remember again though that higher income is taxed more, so future projects will impact tax burden more than early in the year projects.

When flipping houses, capital gains tax rates do not apply. You are taxed on the profit at normal income rates. You only get the capital gains tax benefit if you hold property for more than a year with the intention of renting it out. At least that's what my accountant and numerous other sources say.

Also, the 1031 exchange is not available for flips (unless you are flipping empty land, I believe). The same rule applies for 1031 exchange (which defers taxes until you finally cash out a property) - you must hold the property for at least a year and rent it out (or hold it with the intention to rent it out). Again, so I've been told by people who know more about this than me.

As for holding 1/3 for taxes, that really depends on the state you live in. And as for choosing which way you want to be taxed (as an s-corp or a partnership), that largely depends on how much money you expect to make in a year through your company.

But, really, Danny the best advice here is to speak to a good accountant who works with other real estate investors. You need to have an accountant on your team anyway.