Tax question for flipping a house
Hey everybody had a quick question regarding taxes on a flip. I realize that it’s best to talk to a cpa, but I figured I’d still ask on here anyway! If I spend 70k to remodel a flip (materials, labor, etc.), and the profit after selling the house is 50k, then does the 70k that I spent on the flip cancel out the 50k profit, therefore leading to no taxes paid on the profit? Any help is appreciated! Thanks in advance!
Just to clarify with an example:
1. You bought a house for $200,000
2. You rehabbed the house, spending $70,000 in the process
3. You sold the house for $250,000
Let's ignore all the other costs associated with buying, selling and holding the house (closing costs, taxes, insurance, etc).
Is this the situation you're asking about?
If so, then yes, your $70,000 in rehab costs cancel out your $50,000 in profit.
Though technically, if we were to use the (almost) correct terms, we'd say that:
1. Your "basis" in the property -- the purchase price plus the costs associated with getting the property ready for sale -- was $270,000 (the $200,000 purchase price plus $70,000 in expenses);
2. Your income on the property was $250,000 (this is the cash you got at closing);
3. Your "profit" was your income minus your basis ($250,000 - $270,000), which in this case was -$20,000;
4. So, you didn't really have a profit on this deal -- you had a $20,000 loss.
Exactly what I was looking for. Thanks, J!
