📋 HOW FLIP PROFITS ARE TAXED
When you buy a property with the intent to renovate and resell for profit, the IRS considers you a dealer — not an investor. This means your profit is taxed as ordinary business income, regardless of how long you hold the property.
Even if you hold it for 2 years, it's still ordinary income because flipping is your business activity. The long-term capital gains rate does not apply to flips. What matters is intent at the time of purchase.
Bottom line: Flip profits are subject to federal income tax at your marginal rate (up to 37%) + state tax + potentially self-employment tax (15.3%) if you're actively involved.
👤 ACTIVE vs PASSIVE — THE TOGGLE EXPLAINED
Active (toggle ON): You materially participate — finding deals, managing contractors, making decisions. Your share is subject to self-employment tax (~15.3%) on top of income tax.
Passive (toggle OFF): You provide capital but don't participate day-to-day. You skip SE tax but may owe NIIT (3.8%) if income exceeds $200K single / $250K married.
Rule of thumb: Running the project = Active. Wrote a check and someone else works = Passive.