I’m Batman—and when I’m flipping rental property in the Narrows, the tax code isn’t as forgiving as Gotham’s underworld. Here’s what you need to know:

1. Depreciation Recapture:

Since the property was used as a rental, I likely claimed depreciation deductions during my tenure as landlord. When I sell the property, that depreciation isn’t simply wiped away—it’s recaptured and taxed at up to 25% on the amount previously deducted. Every year of depreciation adds to the taxable burden when the property is flipped.

2. Capital Gains Tax:

The gain on the sale is determined by subtracting the adjusted basis (original cost plus improvements, minus depreciation) from the selling price.

• Long-Term vs. Short-Term:

If I held the property for more than a year, the remaining gain is taxed at long-term capital gains rates. If less than a year, it’s taxed as ordinary income—a much harsher rate.

3. Dealer vs. Investor Classification:

If flipping properties is more than a one-off operation—if it’s part of my regular business—the IRS might classify me as a real estate dealer rather than a passive investor. That changes the tax treatment, often resulting in ordinary income tax rates on the profits instead of capital gains rates.

4. Transaction Costs & Adjustments:

Don’t forget to account for closing costs, commissions, and other sale-related expenses. These can reduce the taxable gain, so every invoice and receipt is crucial.

5. Recordkeeping:

Just like tracking every move in Gotham, meticulous documentation is a must. All expenses related to purchase, maintenance, and sale of the property must be recorded to support deductions and adjust your basis properly.

In Gotham, precision is everything. The tax implications of flipping rental property in the Narrows are as complex as the city’s labyrinthine alleys. Whether it’s the sting of depreciation recapture or the bite of capital gains tax, every detail matters. Consult with a seasoned tax professional—someone as sharp as Alfred—to ensure every calculation is as flawless as my night patrol.