Flipper tax consequences

IRS targeting flippers

Like a junkie needing the next fix, there are a fair number of people here in SW Florida that live for the flip. Be it vacant lots, pre-construction condos or even fixer-uppers.....you probably know someone who is lives and breaths for the next deal.

According to Lonnie Davis, a CPA with Philadelphia based CBIZ Accounting, Tax Advisory Services, there are tax consequences that flippers need to be mindful of.

When you complete several real estate transactions in a short time, don't be surprised to learn that the IRS might consider your property transactions as a business or trade rather than as an investment strategy, said Davis. In that case, there's no way to get out of paying the higher ordinary income tax rates.

So what's the business-versus-investment determining factor when it comes to property flipping? As with many tax issues, it depends.

"It's a facts-and-circumstances test," says Davis. "There's no rule of thumb that says: Buy three houses, you'll get capital gains; buy five and you're a dealer-trader. The IRS looks at whether the activity is really a business.

"Are you buying, renovating and holding multiple properties? What's the frequency of the buying and selling? If you're acquiring 15 properties in a year and that's pretty much what you do, then the IRS will likely determine that you're a dealer."

Here some food for thought, will investors that are realizing losses on several investments be targeted by the IRS as dealers as well?

Tax consequences of flipping real estate [Bankrate.com]