Updated about 7 years ago on . Most recent reply
Ordinary Income vs capital gain with flipping
My son has his own construction business and we flipped a house together for the first time. My profit is short term capital gain. Would his be ordinary income as part of his construction business as he did most of the work and paid his employees as contractors. Or could it be either. I think his taxes would be less with capital gain treatment because he would not have to pay self-employment tax. However, the profit treated as capital gain would not count as income for loan qualification purposes, thus lowering his income (of which the profit was a significant part of income for the year).
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It's actually always ordinary income subject to SE tax regardless of how long its held.
Only time it's capital gains is if it wasn't intended to be a transaction for profit - For example...if you inherit a house, fix it up and sell it. You didn't go SEEK a house to generate profit on.
If your intention was profit, it's ordinary income.
