Many first time flippers are so caught up in the rush of flipping a house that they do not research the tax laws to see how much this flip is going to cost them in capital gains taxes. When you flip a house you will owe capital gains tax on the total profit off of the house.

Example:

• Purchase House $100,000
• Fixing House $25,000
• Sell Price $200,000
• You Owe Capital Gains Tax on $75,000

In case you did not know capital gains tax varies from 15% - 35% depending on different variables. So, if you blow your $75k, or reinvest all of it back into real estate then you could be in some serious trouble at tax time. If your capital gains was 25% than you would owe the IRS $18,750. I love to flip, but I also think people need to be informed so that they don’t find themselves in trouble with the IRS, because that is trouble that you just don’t want.

If you want to avoid capital gains tax all together you can rent the property for 2 years, and then flip it, and not have to pay capital gains tax.