I'm told by my title company that they don't report any income less than 8K to the IRS for wholesale flip deals. Does anybody know how this is to be reported and how much taxes one might pay on it?
Unfortunately, <12month holding of investment properties is ordinary income. Reporting it will depend on your business structure - your accountant will handle the tax prep for you. You can expect to pay 30-40+% tax depending on your state and income level. I flip a lot of properties in an S Corp as my job, and hold rental properties for capital gains (15% tax), as well as holding my primary for at least 2 years (no tax on the profit up to $250K per spouse). Flipping is a job, capital gains and primary exemptions are the bonuses (and they can be big when you take tax discounts into account).
Joe thanks for the fast response. The quick flips I'm talking about are the wholesale deals, not properties I owned and flipped. Will that make a difference? I know this is the accountant's job, but I havent set up a corp for my wholesale deals. Just LLCs for long term holding. The title company writes the check to my LLC. I'm a little worried as to am I createing trouble.
I am curious. When you wholesale flip aren't you the owner when title transfers to your buyer? If so, then the title company should give you a 1099-S for the amount of your sale price, regardless of your net profit.
If, instead, you are really doing contract assignments, and your assignment fee is less than $8K then I can understand why your title company told you what they did.
Another great strategy to save, is to establish a self-directed IRA. This is if you're ready to stock pile some money away fro retirement, and don't need it to live on. If you can just do one deal this way, you will be on your way. For that, I use:
www.trustetc.com
Unfortunately, <12month holding of investment properties is ordinary income. Reporting it will depend on your business structure - your accountant will handle the tax prep for you. You can expect to pay 30-40+% tax depending on your state and income level. I flip a lot of properties in an S Corp as my job, and hold rental properties for capital gains (15% tax), as well as holding my primary for at least 2 years (no tax on the profit up to $250K per spouse). Flipping is a job, capital gains and primary exemptions are the bonuses (and they can be big when you take tax discounts into account).
Joe thanks for the fast response. The quick flips I'm talking about are the wholesale deals, not properties I owned and flipped. Will that make a difference? I know this is the accountant's job, but I havent set up a corp for my wholesale deals. Just LLCs for long term holding. The title company writes the check to my LLC. I'm a little worried as to am I createing trouble.
I am curious. When you wholesale flip aren't you the owner when title transfers to your buyer? If so, then the title company should give you a 1099-S for the amount of your sale price, regardless of your net profit.
If, instead, you are really doing contract assignments, and your assignment fee is less than $8K then I can understand why your title company told you what they did.
Kid, you are right. It really is a contract assignment. So I'm wondering how the IRS treats this?
I would expect you would treat it as ordinary business income on your Schedule C (1040)
Unfortunately, it is treated as income. : (
Using 1031exchange can save you quite a bit. Since you are in the business, you are going to be getting another property anyway, right?
Here's a link to the 1031 company I use. Their website has a lot of great information on 1031's, in general.
http://www.ipx1031.com/benefits.html
Another great strategy to save, is to establish a self-directed IRA. This is if you're ready to stock pile some money away fro retirement, and don't need it to live on. If you can just do one deal this way, you will be on your way. For that, I use:
www.trustetc.com
Good Luck!
I did not think flips were eligible to participate in a 1031 exchange.[ Edited by NewKidinTown2 on Date 10/10/2004 ]
If your corporation is assigning purchase contractrs or wholesaling properties the check should be made to the corporation, not your unrelated LLC.
Why is the LLC involved?
Remember these are all separate entities and cannot be comingled.
The profits you make are treated as ordinary business income. Of course you do have the advantage of being able to write off your expenses. GOOD LUCK