Charlotte, NC · Member since 2020 · 3 posts · 3 votes
Hello all. I am new to flipping and I am nearing the completion of remodeling my first property. After this property my hope is to do 2 or 3 property remodel and flips within a single year. I'm an engineer by training so I do very well with running calculations and making projections and working with my budget. The hardest part for me is figuring out how the taxes will work if I do flip 2 or 3 properties a year. I can't really get a clear visual whether it will be profitable or not since taxes are such a huge part of the equation.
Can any flippers that have a proven track record and do quite a few properties in 1 year get with me and give me a rundown what keeps you profitable and keeps most $$$ in your pocket per flip, especially regarding how you handle taxes for this.
Otherwise, looking for a great CPA that knows their game in real estate flipping and that can help me run through various scenarios, so that I could dial in my potential flip targets and see where I am getting most bang for my buck as far as remodel costs, closing costs, realtor costs, and taxes.
Hi @Serge Velet, making money on flips is pretty straightforward.
Profit = Sale price - Costs(Purchase, Renovations, Holding, Selling, Financing). Take into account your general overhead (insurance, marketing, accounting, etc.). What's left over is your profit. If you're new, J Scott's book on Flipping Houses is a fantastic starter.
Income from flips is treated as active income and taxed accordingly. It's highly dependent on your tax & income situation. One person might be taxed at 30% while another might be 47% in a higher bracket and higher tax state.
The most common way to reduce tax liability from flipping houses is to refinance them and keep the flips as rentals. If it's rented out and you sell a year later, it will be taxed as capital gains instead of active income. Consult with your CPA, but it's roughly a 15-20% tax instead of 30-50% if you bought and sold as a flip.