How to Account for Flipping Houses: A Comprehensive Guide

In recent years, purchasing a home with the purpose of repairing it and reselling it for a profit, or flipping it, has gained popularity as an investment strategy. While it may be a profitable endeavor, meticulous planning and bookkeeping are also necessary to make sure you are maximizing your profits and abiding by tax regulations.

1. Maintain precise records: It’s crucial to keep thorough records of every item incurred during the flip, including the cost of the purchase, the cost of the renovations, and any fees incurred during the buying and selling of the property. You can compute your profit margin and overall investment in the property with the use of this information.

2. Choose your foundation: Your investment in the property, which includes the purchase price and any modifications you have done, serves as your base. When you sell the property, your capital gains tax will be determined using this amount.

3. Recognize your tax liabilities: If you benefit from the sale of a property, you will be required to pay capital gains tax on the difference between the basis and the selling price. Your income tax bracket and the period of time you owned the property will determine how much tax you owe. You will be responsible for paying short-term capital gains tax, which is levied at your regular income tax rate, if you owned the property for less than a year. You will be responsible for paying long-term capital gains tax, which is charged at a reduced rate, if you owned the property for longer than a year.

4. Seek advice from a tax expert: Flipping homes may be a complicated business, so it’s crucial to speak with a tax expert to make sure you’re abiding by all tax regulations and making the most money possible. A tax expert can assist you in calculating your tax liabilities and identifying any possible deductions or credits.

1. If I earn $200,000, how much tax do I have to pay?

Your tax obligation if you earn $200,000 will be influenced by your filing status, deductions, and credits. According to the IRS tax tables for the 2020 tax year, if you file as a single taxpayer and claim the standard deduction, your federal income tax obligation would be roughly $52,557.

The amount of income you must earn in 2021, along with your filing status, deductions, and credits, will determine whether you owe taxes or not. The standard deduction for a single taxpayer under 65 for the 2021 tax year is $12,550. This implies that you would not owe any federal income tax if your income was less than $12,550. Nevertheless, based on your income, you can still owe additional taxes, such as Social Security and Medicare taxes.