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Old 06-24-2012, 05:35 PM
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capital gain or comission?

Dear Sir,

I am a realtor and recently I (buyer) assigned a contract (property contract) which was under contract to another buyer.I charged a fee for assigning this contract. That means I was the buyer of the property and the contract was signed and before closing I (buyer) then assigned this contract to another buyer MR.ABC for a fee. Later,this contract was closed and done with the MR.ABC.

This is my first time dealing with such case.May I know if i can treat this assignment fee as capital gain? Or is this assignment fee treated as my comission? Appreciate your advice.

Thanks
family57



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Old 06-24-2012, 10:55 PM
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“May I know if i can treat this assignment fee as capital gain?”---->It depends on your business situation;as long as you flip properties on a regular basis, the IRS may consider it a business, and you must report the profits on sch C of 1040 as ordinary income. If you flip just an occasional property and have other income, the IRS may require that you treat the income as investment income and report the proceeds on Sch D of 1040, either LTCG/STCG(STCG capital gain income from assets held one year or less is taxed at the ordinary income tax rates in effect for the year, ranging from 10% to 35%. It would be considered ordinary income, which is taxed at your marginal income brackets ranging from 10% to 35% for tax year of 2012.).The advantage to reporting this way is that there is no FICA taxes due on the profits. If you treat the flipping income as business income, you will record the income or loss on the property in the year it was received. ; However, I am not sure if this is your situation, as long as you assigned your right in a contract, then, it’d be STCG if you assigned your LLC, either SMLLC/MMLLC, interest. LLC interest is considered a capital asset. And with ordinary income comes self employment taxes on Sch SE of 1040. STCG is subject to ordinary income tax rate.
“ Or is this assignment fee treated as my comission?”---->As described above ;it depends.


Last edited by Wnhough : 06-24-2012 at 10:59 PM.


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Old 06-24-2012, 11:12 PM
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capital gain or comission?

Thank you Wnhoughfor your advice,appreciated.
Hope the below information can give a better scenerio of my case for your comment/advice.

This is my first time flip property.My other income is from a real estate brokerage firm. I have to pay self employment tax on my income received from this real estate brokerage firm.
Yes, I ( not LLC entity) assigned this contract rights in less than 5 months and this assignment fee is earned less than 6 months , so its short term.
Let me know if I need to treat this as investment income and reported in schedule D ?

Thanks again!
family57



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Old 06-24-2012, 11:24 PM
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“Let me know if I need to treat this as investment income and reported in schedule D ?”--> the IRS may require that you treat the income as investment income and report the proceeds on Sch D/Form 8949 of federal form 1040.I guess you can contact the IRS for more info indetail.



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