1031, sell, or house hack??

Question

I am in the middle of flipping two houses. I plan on moving into one of them. One will be done about a year before the other. I’m wondering what you guys would do for taxes on them? I could live in the first one for two years(but would pay mortgage/interest obviously)  or sell right away and 1031 or pay the gains tax. Selling a freshly renovated house may be a selling point. I just am struggling with considering paying gains tax

Bill B. · Answer

As you were told the last time you posted this..

You can’t do a 1031 on a flip. You won’t be paying capital gains tax, you’ll be paying regular tax, self employment tax, and possible NIT. (Double to triple capital gains rates.)

Tax-wise there isn’t a worse job than house flipper.

Ps. You may want to consider hiring professionals if your flips are taking well over a year. (Assuming this is the case as one isn’t done but will be done a year before the second.). Try to get closer to 3-6 months. The savings in holdings costs will be immense and you’ll have a clearer picture of the market you’ll be selling in to.

Keaton Vols · Answer

@Bill B. Yes it will be capital gains tax. That would be the case if I've done multiple flips and they saw me as a business. This is the first one that I've done. I hired a professional contractor and there is a reason I haven't started on the other one yet. Thanks for your concern tho

Keaton Vols · Answer

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Patricia Steiner · Answer

Congrats on creating a problem that is actually worth having and that is wealth building.  For me, it comes down to crunching the numbers...sometimes paying capital gains - while I HATE doing it - is financially the right play.  The capital gain, as I'm sure you know, is the 'difference between the net selling price and the adjusted cost basis (original purchase price + improvements + buying/selling expenses)' so it will hurt but hopefully just enough to still make it worthwhile and net you a great ROI.Before considering a 1031, know that it isn't a vehicle for flippers as defined by the IRS code.  Here's a good source of information on that:  https://www.ipx1031.com/1031-exchange-2-year-rule/

Refinancing and holding is an option but there are costs associated with that including lender fees, title/transfer, insurance, property taxes - as well as marketing the property for rent, maintenance, tenant/lease management.  The property may be worth more selling it while 'new' rather than after it has been tenant occupied as you have inferred.  This can be easily determined by recent comparable sales in that market.

You've got this.

Jason Wray · Answer

The other option if there is equity in both of them is do a "Cash out Refinance", or HELOC and pull out the Max cash to continue down the REI path.  Why sell if you can rent if it cash flows keep it and use the equity as your piggy bank!

1031, sell, or house hack??

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