Advice on Capital Gains Tax

[Daniel Black]

Hi everyone,

I am very new to real estate, in fact, I haven't even begun yet. I have been a BiggerPockets fan for years! I listen to the podcast and attend the weekly webinars in order to learn as much as possible.

SO! I potentially am going to have my first deal lined up, it is a condo that is ironically next door to my parents. 

I am an Assistant Superintendent for a fairly large General Contractor in the Boston area as my day job and am graduating with my Bachelors in Project Management. The project management portion of this potential deal I am very confident that I have that under control. 

My biggest concern is my lack of expertise in the real estate transaction itself and also more importantly Capital Gains tax if I were to flip it. I would like to get some input on any suggestions on how to avoid or minimize this tax. I get the general concept, I just would want to know if it would affect me. 

The purchasing price of the condo is $90,000....Rehab is estimated for $20k-$25K and the ARV should be around $155K-$175K. I would plan on rehabbing it and selling it within a year. What are the implications I would run into with the capital gains tax and I guess my biggest question is "What am I missing".

Am I over-analyzing capital gains??

I look forward to hearing from all of you!

Thanks,

DJ

[Natalie Kolodij]

Can everyone please stop telling OP that his income will be capital gains. 

A flip is only capital gains if it wasn't intended to be a flip. Kind of a one off. 

If you buy a flip with the intent of reselling for profit that's a business to the IRS. That will be ordinary business income subject to 15% Self employment tax on top. 

Your w2 income will be taxed at ordinary income tax rates as normal- as will your flip income. 

Your % that your ordinary income is taxed at will be based on your overall income for the year- check out the 2020 IRS income tax brackets. 

Then the flip income on top will also include self employment tax.