I have a question about taxes in Virginia. If I flip a property in Virginia in less than a year I know that I will have to pay capital gains tax on the federal and income tax for the state. My question is will I have to pay self employment tax such as medicare and social security on my profits? Could someone give me the breakdown of taxes they paid on a flip in Virginia?
@Colby Shelhorse Intent and history are important when determining the tax liability for a "flip". If you're considered a dealer and the transaction is, in fact, a flip, then the property is considered inventory. This means the profit is taxed as ordinary income (not capital gain) and subject to self-employment tax.
If, however, you're portfolio shows a history of rentals, you intended to get into this property as a rental but ultimately decided to sell for whatever reason, and this "flip" is not a regular occurrence, you may be able to avoid classifying it as a flip subject to ordinary income and SE tax.
Definitely make sure to speak to your CPA to get specific advice on your personal situation.