New Anti-Flipping Tax
The federal government is cracking down on house flipping, and the new anti-flipping rules to take effect in January 2023.
Flipping has been defined in government documents as “purchasing real estate with the intention of reselling the property in a short period of time to realize a profit.”
The government’s intent behind the new legislation which is commonly referred to as an “anti-flipping tax” is another measure to reduce speculative demand and help to cool the excessive price growth we’ve seen in the past few years.
Today, when a home qualifies as a principal residence and you sell it for a profit, capital gains realized on its disposition can be realized tax-free by claiming the principal residence exemption (PRE).
If your property was purchased for the purposes of flipping, assignment, or buying to build and sell, your profits on the sale of the property are generally taxed as Business Income at your tax rate. If you purchased a property to generate rental income, your profits on the sale of the property would be taxed as capital gains.
Under the new tax law, anyone who sells a property that they owned for less than 12 months (specifically, 365 consecutive days) will be considered to have “flipped” the house and any profits from the deal will be taxed as business income.
This means the gain, less any associated expenses will be fully taxable in the year of the sale, just as though the seller earned the money in other employment.
Exceptions include a certain number of life events including the death of the individual or a related party, an addition to a household, breakdown of a relationship, a threat to personal safety, serious illness or disability, work relocation or termination, insolvency or destruction or expropriation of the home.
Make sure you speak to a professional accountant and get legal advice from a real estate lawyer if this situation may apply to you.
Credit: Deeded for helping provide this information.