📋 HOW FLIP PROFITS ARE TAXED
When you buy a property with the intent to renovate and resell for profit, the IRS generally treats you as 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 most is your intent when you buy and how you act while you own it (how often you flip, how much work you put in, how you market the property).
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% up to the $184,500 Social Security wage base, 2.9% above) if you're actively involved. The good news: flip profit usually counts as qualified business income, so the 20% QBI deduction (made permanent in 2025) can shrink the federal income tax piece. This calculator includes it.
👤 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.