New Jersey Real Estate Flipping Tax Implications

7 Replies

Hello everyone!

I was shocked to learn that the tax implications of flipping property in New Jersey could make it cost prohibitive (eat of most or all of the profit). Are there any New Jersey season investors that could shed some light on this. I will of course seek the help of my accountant but wanted some background info and insight from you all before I approach....

Thank you so much!!

Yes unfortunately NJ levies a state income tax on your capital gains. A whopping 9%!!! Once you factor in federal capital gains, NJ flippers can be subject to a combined capital gains tax rate of 30.4%!!! Not as high as California's at 13.3 percent, with a combined rate of 33%, but still high. 

As long as you've held the property for at least one year, the federal capital gains rate, as of 2013, was 15 percent. But most flippers aren't holding properties for "at least a year." Not sure if NJ's state income tax is a lower percentage if you hold a property for at least a year? This may be something to ask a CPA in Jersey about.

Originally posted by @Ben C. :

Hello everyone!

I was shocked to learn that the tax implications of flipping property in New Jersey could make it cost prohibitive (eat of most or all of the profit). Are there any New Jersey season investors that could shed some light on this. I will of course seek the help of my accountant but wanted some background info and insight from you all before I approach....

Thank you so much!!

 Flipping is active earned income. You are no different than a store selling clothes or other items/manufactured goods.

Originally posted by @Corey Dutton :

Yes unfortunately NJ levies a state income tax on your capital gains. A whopping 9%!!! Once you factor in federal capital gains, NJ flippers can be subject to a combined capital gains tax rate of 30.4%!!! Not as high as California's at 13.3 percent, with a combined rate of 33%, but still high. 

As long as you've held the property for at least one year, the federal capital gains rate, as of 2013, was 15 percent. But most flippers aren't holding properties for "at least a year." Not sure if NJ's state income tax is a lower percentage if you hold a property for at least a year? This may be something to ask a CPA in Jersey about.

 Anyone flipping property IS NOT subject to capital gains. Their income is taxed at ordinary rates. It is Inventory just like the store across the street. The only difference is that inventory is real estate. 

Originally posted by @Steven Hamilton II :
Originally posted by @Corey Dutton:

Yes unfortunately NJ levies a state income tax on your capital gains. A whopping 9%!!! Once you factor in federal capital gains, NJ flippers can be subject to a combined capital gains tax rate of 30.4%!!! Not as high as California's at 13.3 percent, with a combined rate of 33%, but still high. 

As long as you've held the property for at least one year, the federal capital gains rate, as of 2013, was 15 percent. But most flippers aren't holding properties for "at least a year." Not sure if NJ's state income tax is a lower percentage if you hold a property for at least a year? This may be something to ask a CPA in Jersey about.

 Anyone flipping property IS NOT subject to capital gains. Their income is taxed at ordinary rates. It is Inventory just like the store across the street. The only difference is that inventory is real estate. 

 So the ONLY way to avoid this is to hold the property for at least 1 year?

Originally posted by @Ben C. :
Originally posted by @Steven Hamilton II:
Originally posted by @Corey Dutton:

Yes unfortunately NJ levies a state income tax on your capital gains. A whopping 9%!!! Once you factor in federal capital gains, NJ flippers can be subject to a combined capital gains tax rate of 30.4%!!! Not as high as California's at 13.3 percent, with a combined rate of 33%, but still high. 

As long as you've held the property for at least one year, the federal capital gains rate, as of 2013, was 15 percent. But most flippers aren't holding properties for "at least a year." Not sure if NJ's state income tax is a lower percentage if you hold a property for at least a year? This may be something to ask a CPA in Jersey about.

 Anyone flipping property IS NOT subject to capital gains. Their income is taxed at ordinary rates. It is Inventory just like the store across the street. The only difference is that inventory is real estate. 

 So the ONLY way to avoid this is to hold the property for at least 1 year?

 You're still going to pay income, and if you are rehabbing it to sell it IS flipping it and just holding for longer, its not longer for investment once you are improving it. to make your money primarily off of improvements.