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Tax LiabilityMost projects come down to the tax aspect for profitability. For example, if you keep a flip for two years or more, there may be no tax liability on any profit you may make up to a certain amount if you declare the house your primary residence. You need to ask a tax person about this.Then you also have to look at the difference between your cost and sale price in another way.This difference is your gross profit before income taxes. Determine your income tax liability for this transaction to be sure you are ready for that big bite when the time comes. Consult the IRS about this aspect of the flip so there are no surprises. If you own the property less than a year, say, then the profit may be considered ordinary income. There may also be social security taxes due on the amount of profit if this is a business for you and you fill out a schedule C. Take time to visit the local tax office near you to ask questions about how any profit you may earn will be considered as well as what tax forms and accounting procedures you may need.
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Prepared 2006-2010 David Ullian Larson |