What taxes do I owe when I wholesale real estate?
By wholesaling I mean that you have contracted with a real estate owner to buy their property at a price, but this contract allows you to assign this purchase to another buyer. When you assign the purchase to another buyer, the other buyer agrees to buy the same property at a higher price than the price that you agreed to with the owner.
Your gross income is the difference between the higher price and the original price. This amount must be reported, if you're a sole proprietor or a single member LLC, on your Schedule C and will be taxed ordinarily and by the self employment tax. You can offset this gross income with expenses associated with earning this income, including:
- deposits paid to real estate owners upon signing the original contract,
- advertising costs to market the property,
- business-use portion of your cell phone bill, and
- business mileage driven.