1099 S form. Gross sale in wholesale question???

Question

On a wholesale deal. $50k total sale, $11k profit. Double close process. 1099S form says $50k gross proceeds. Is wholesaler responsible for taxes on the whole 50k even though $11k was all they received???

Or should this form have been split with $39k to true seller and $11k to wholesaler.

I'm a newbie and didn't want to misspeak.

Linda Weygant · Answer

It's not about length of time in holding the property.  It's about the nature of the income.  Wholesaling houses is no different than wholesaling computers.  When you're the salesman, you're either selling from inventory you own or you're earning a commission on a product that you never owned.  Either method is ordinary income.

Flipping is the same, by the way.  The IRS doesn't care if you're assembling sandwiches, furniture or houses.  It's all ordinary income.

Capital gains is solely for landlords who sell their rental properties.  In this situation, you had an asset that generated income (rent) on its own.  It's like holding stock or mutual funds.  They generate income (dividends) on their own.  Therefore, when you sell an income producing asset, the sale is capital gains.

Selling an asset where the only way it's generating income is through the sale itself, is ordinary income.

Linda Weygant · Answer

Wholesaling is not capital gains.  It's ordinary income and also subject to Self Employment tax.  Other than that, your advice is correct.

Josh Young · Answer

Ask your CPA, but $50k is correct on the form if that was the sales price, and then your CPA will put $39k as your basis, so your short term capital gain will be $11k. You should also provide your CPA with the settlement statements and account for any other expenses that you incurred.

1099 S form. Gross sale in wholesale question???

Most Popular Reply