New Jersey Real Estate Flipping Tax Implications

Metuchen, NJ · Member since 2015 · 374 posts · 27 votes

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!!

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Steven Hamilton IIPro Member

Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes

10y

Originally posted by @Account Closed:

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.

[email protected]224-381-2660

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Account Closed
Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
10y
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.
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
10y
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.
[email protected]224-381-2660
1 Reply
Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
10y
Originally posted by @Account Closed:

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.
[email protected]224-381-2660
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Ben C.
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Metuchen, NJ · Member since 2015 · 374 posts · 27 votes
10y
Originally posted by @Steven Hamilton II:

Originally posted by @Account Closed:
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?
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Steven Hamilton IIPro Member
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
10y
Originally posted by @Ben C.:

Originally posted by @Steven Hamilton II:
Originally posted by @Account Closed:

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.
[email protected]224-381-2660
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Luke Catanzaro
Parsippany, NJ · Member since 2017 · 2 posts · 0 votes
9y
Could you sell the property with a 1031 exchange to avoid the taxes reinvesting it into another property?
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
9y
@Luke Catanzaro, Same Gotcha. 1031 is only available for property it has been your intent to hold. Flipping activity will not qualify for 1031 exchanges.
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