How to avoid paying capital gains tax for flipping?

Question

I wanted to know that how can I avoid paying capital gains tax if I want to sell the property. I know we do a 1031 tax defer exchange but thats only for investment properties. But how can i avoid paying capital gains tax if i want to sell the property and need cash?

Wayne Brooks · Answer

Your title mentioned a “flip”.  Not only does a true flip, bought just for purpose of repairing and selling for a profit, does not qualify for cap gains either....profits are taxed as ordinary income plus ss/med taxes of 15.3%.

Andrew B. · Answer

Sell houses at a loss and you won’t pay capital gains.

In all seriousness, stop looking at flipping as an investment. It’s more like a retail business in the eyes of IRS. Asking how to avoid paying taxes is similar to a hardware store asking. Get a good CPA, take his (or her) advice, and keep good records so you can maximize deductions. There is no “secret” or trick to pay no taxes on your flip.

Parin Shah · Answer

@Jasraj Singh you answered your own question. If you take any gains the gov wants a cut you’re going to pay tax unless you use that 1031 to stimulate the economy and buy another property.

J.C. Martel · Answer

Question for the group - If you flip in an S-corp, can't you take the first $40k (single) or $80k (married) as tax-free dividends?

Jasraj Singh · Answer

Alright! No not yet. but I think 40% is a lot and that's why I think I need to hire a CPA.

Jasraj Singh · Answer

Thanks for responding mate! but I didn't exactly understand what you're trying to explain?

Basit Siddiqi · Answer

@Jasraj Singh

Are you working with an accountant - What did he suggest? He will know the most information about you which would make him suitable to answer your question.I would suggest being able to deduct all the expenses you are entitled to.You are entitled to report deductions if it was ordinary and necessary(and reasonable) for the flip to occur.a $1000 extra deduction will save you $400 if the total tax rate is 40% which is average if you consider federal taxes, state taxes and Self-employment taxes)

Adam Blachnio · Answer

@Jasraj Singh

There is other worst thing, that government may treat you as a DEALER if you're wholesale, but Don't know if F&F is subject to same treatment??

Jasraj Singh · Answer

Alright! thanks man! but can you tell me what do you mean by "Boot"? I'hv searched it a lot but I still exactly don't know what that is and how does it work?

Jasraj Singh · Answer

Right! thanks man! But what do you think about a tax attorney?

How to avoid paying capital gains tax for flipping?

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