To flip or rent out and tax consequences

[George Rodriguez]

I bought a home in April 2015 and rehabbed it. I put it up on the market for sale and rent at the same time. I have an interested couple in renting the townhome for a 6 month lease. So that would give the home back to us for selling in the summer. My question is should I sell now ( subject to short term capital gains, self employment taxes) or rent out and sell after the one year hold ( subject to long term capital gains) ? Also what is the long term capital gains for real estate? Are there other tax considerations? Jorge

[Brandon Hall]

@George Rodriguez

15% capital gain tax on long term (>12 mo) holds unless you are in the highest tax bracket at which point the tax will be 20%. Don't forget to factor in state tax.

You need to get with a CPA so that you can structure the deal in such a way that you demonstrate investment intent. A rehabbed property that you are intending to resell is not a property held for investment intent. The way you've laid out the facts currently, it can go either way but the IRS will say it's a flip vs an investment which will subject you to ordinary income and self employment tax. It's also important to note that you can "hold" a flip for several  years and if you fail to demonstrate investment intent, it will still be subject to ordinary income and self employment tax rather than long term capital gains.