If a house flipper is categorized by the IRS as a “dealer,” the profits from property flips will be taxed at their ordinary income tax rate. The profit is calculated by subtracting the expenses, including the purchase price, from the final selling price. Tax brackets range from 10% to 37% for “active investors” earning active profits. In addition, the profit is subject to self-employment tax.
Most fix-and-flip investors are considered dealers; they hold their properties short term and the majority of their income is derived from flipping houses.
If you’re fortunate enough to avoid the dealer definition, (keep in mind that this is rare for most flippers), profits made from properties held more than 12 months are typically subject to more favorable long-term capital gain brackets ranging from 0% to 20%. Even better, if you qualify for capital gains tax treatment, you don’t have to pay self-employment tax.