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Capital Gains Estimate

Results update as you type. Tap ? on any field for help.

How to use the Capital Gains Estimate

1
Enter the sale
The sale price and your selling costs as a share of it.
2
Add what you spent
Purchase price, closing costs, the rehab, and financing and holding costs.
3
Set how long you owned it
Investors who hold more than 12 months may qualify for lower long-term rates.
4
Enter your tax rates
Your federal bracket, the long-term rate that applies to you, and your state rate.
5
Decide on self-employment tax
If you flip regularly as a business, ask a CPA whether self-employment tax applies. If so, enter 15.3%.

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Taxes are one of the biggest costs of a flip, and one of the easiest to forget. This tool gives you a rough estimate so you can set money aside from the sale. It's not tax advice: your actual bill depends on how the IRS classifies you, your other income, your deductions and your state. Talk to a CPA before you file.

Two rules drive most of the estimate. Profit on a house held 12 months or less is a short-term gain, taxed at ordinary income rates. And people who flip regularly are often treated as dealers, whose profit is ordinary business income that can also be subject to self-employment tax, however long they held the house.

Worked example

A flipper sells a house for $380,000 after owning it for six months. Selling costs are 8%. The house cost $240,000, plus $4,800 in closing costs, $60,500 in rehab and about $26,400 in financing and holding costs. That leaves a profit of about $17,900.

In the 24% federal bracket with a 5% state rate, the estimated tax is about $5,200, leaving about $12,700 after tax.

Held more than 12 months and taxed as an investor at the 15% long-term rate, federal tax would fall by about $1,600. Six more months of holding costs could easily cost more than that.

The formula

Profit        = Sale price − Selling costs − Purchase − Buying costs − Rehab − Financing & holding
Federal tax   = Profit × (Long-term rate if held > 12 months, else Federal bracket)
State tax     = Profit × State rate
SE tax        = Profit × 92.35% × Self-employment rate
After-tax     = Profit − Federal tax − State tax − SE tax

Common mistakes

Spending the whole profit. Set aside the estimated tax as soon as the sale closes.
Holding just for the tax rate. Extra months add interest and holding costs, and dealers don't get long-term rates anyway.
Assuming investor treatment. If you flip several houses a year, the IRS may see you as a dealer. Ask a CPA how your activity is likely to be treated.
Forgetting estimated payments. Flip profits usually aren't subject to withholding, so you may need to make quarterly estimated tax payments.

Questions people ask

Can I use a 1031 exchange on a flip? Generally no. A 1031 exchange applies to property held for investment or business use, and houses bought to resell usually don't qualify. Ask a tax adviser about your situation.

What does this leave out? Deductions, the 3.8% net investment income tax, the Social Security wage cap on self-employment tax, depreciation and state-specific rules. Treat the result as a planning number only.

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