Where can I learn about taxes? (flipping not rental)

6 Replies

I got my first flip on the market and have no idea about taxes at all. We are approaching the end of the year and I have always had a w-2 job or was in the Navy so taxes were very simple and I could do them for free on turbo tax. Now I have been self employed for the last 4 months and have flipped this house, which if sells will complicate them even more. ( I am aware of capital gains and how high they are) I am looking for some good resources that I can learn about them. Books, Podcasts, YouTube videos, articles, forum posts. I understand there are a lot of posts about this topic and I have been reading them but the more I know and the more prepared I can be for the future the better! I am going to get them done by a professional but I would still like to know where my money is going and why I'm paying what and so on and so fourth. Thank you so much! 

Originally posted by @Skyler Mckinney :

I got my first flip on the market and have no idea about taxes at all. We are approaching the end of the year and I have always had a w-2 job or was in the Navy so taxes were very simple and I could do them for free on turbo tax. Now I have been self employed for the last 4 months and have flipped this house, which if sells will complicate them even more. ( I am aware of capital gains and how high they are) I am looking for some good resources that I can learn about them. Books, Podcasts, YouTube videos, articles, forum posts. I understand there are a lot of posts about this topic and I have been reading them but the more I know and the more prepared I can be for the future the better! I am going to get them done by a professional but I would still like to know where my money is going and why I'm paying what and so on and so fourth. Thank you so much! 


If you want high level overview, then just reading some blogs or article from a creditable source should provide you with basic. (You will quickly realize, its not easy to learn tax)

However, you really cannot learn it unless you are doing it or went to school for it. I can tell you that even with two degrees in accounting and CPA, grasping tax concepts without having experience is extremely hard, at least for me.  

Bottom line is, you should be talking to your tax advisor on your issue if you really want to personalized tax strategy.  If you want basic knowledge with might now even be relevant to your activity, online reading is good place to start. 

 

@Skyler Mckinney here is your first tax lesson: you don't have capital gains on flip properties. It is ordinary income taxed at your rate. Be prepared to cough up about 25% of your profit (or more) and to file quarterly. You have about 40 days left in the year. I'd be talking to your tax professional NOW to see what you might expect and if there are ways to offset some of that income. @Ashish Acharya   If your house doesn't sell in 2019 then you don't pay the taxes this year - but you also don't write off many of the costs either. 

@Ashish Acharya thanks for the info! I don't intend on doing them ever so I guess I may never understand them aha. But I really enjoy learning new things especially things that pertain to my life. So I will keep on reading articles and gather as much info as I can. 

@Teri S. Thank you for clarifying that I had no idea. I haven't sold one property yet and If I don't get this house under contract in the next two weeks It won't be part of 2018. And I guess I should start talking to some tax professionals to get some expectations. 

As a house flipper your income is considered Earned income.  this income is taxed the highest because you pay income tax and social security tax.  

There are some strategies to convert your income to a different type of income that is taxed less.  For example

You can run your business through an S corp and convert part of your earned income to ordinary income.  On the ordinary income you only pay income tax. No social security tax.

You could convert ordinary income to capital gain income (lower tax rate) by renovating a house, then renting for a year, then sell.  


A good book that explains this is called "Tax Free Wealth"  by Tom Wheelright.  He is Robert Kyosaki's CPA.  

Flipping is ordinary income tax which means it's taxed at your ordinary tax rate- the same rate as your w2 job. 

It is also self employment  income which means you will also pay self employment taxes on the earnings. This is about 15.3%. On your pay check all of those small amounts that are withdrawn (fica, ss, meidcare) your employer pays half, and you pay half. Being self employed mean you pay both halves totaling about 15.3% on top of your normal taxes you pay. 

You don't get to convert this into any other type of income. 

Someone mentioned an S corporation which is a method to reduce that self employment tax- but really only advisable if you've made over $60-70k. Otherwise the costs associated with the corp will cost you most than save you. 

If your flip is not sold by the end of this year then really NOTHING goes on your 2019 taxes. All of your costs associated with the flip (holding costs, renovations ect) are all capitalized and they are reported as cost of goods sold against the income in the year when the flip sells. 

I would recommend reaching out to a REI specialized tax profesional to help you report this and ensure you're maximizing your tax benefits.

For overall education I would read Amanda Han's book on taxes that's available here on the BP bookstore. 

Originally posted by @Brian Poppleton :

As a house flipper your income is considered Earned income.  this income is taxed the highest because you pay income tax and social security tax.  

There are some strategies to convert your income to a different type of income that is taxed less.  For example

You can run your business through an S corp and convert part of your earned income to ordinary income.  On the ordinary income you only pay income tax. No social security tax.

You could convert ordinary income to capital gain income (lower tax rate) by renovating a house, then renting for a year, then sell.  

A good book that explains this is called "Tax Free Wealth"  by Tom Wheelright.  He is Robert Kyosaki's CPA.  

 Brian,

Your interpretation is entirely incorrect. You cannot simply convert it to another type of income. @Natalie Kolodij covered it perfectly.  If the goal was to flip it you cannot just rent for a year and it change it. There are so many details and point you are leaving out that must be disclosed. 

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here