Taxes on profit from a live in flip

Buying & Selling Real Estate
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Taxes on profit from a live in flip

Tara Baldauf
Member since 2020 · 2 posts · 0 votes

I bought a house to flip that I am using as my primary residence. I will have the renovations complete after 6 months of ownership and want to sell right away. This is my second flip (the first house I owned for 3 years). I am looking for a CPA in the harford county area, MD who is investor friendly. 

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Cara Powers
Accountant · Albuquerque, NM · Member since 2019 · 43 posts · 30 votes
6y

@Tara Baldauf

Congratulations on getting a live-in flip done in 6 months. That shows dedication. That said, I second what @Bill Hampton said, getting a real estate specialist who will be responsive all year is better than getting someone local. 

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    6y

    As your residence....ordinary income tax (short term cap gains)

    As a “flip” only....ordinary income tax plus 15.3% ss/med.

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  • John Teachout
    Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
    6y

    If the upside is much, would it be worth it to extend your stay to be eligible for the tax exemption?

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Tara Baldauf

    It would be nice to treat as a primary residence than a flip where profit is considered ordinary income from the sale of inventory as opposed to investment property. But you can only get the sec121 exclusion once very two years I believe.. I assume you took it for your last residence...

    What you do will definitely depend on your personal circumstances. Good luck

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  • Bill HamptonBusiness Member
    Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 977 votes
    6y

    @Tara Baldauf

    I recommend finding an accountant who specializes in real estate taxation over one that is local. 

    I would also recommend looking for a tax strategist who is willing to work with you throughout the year, not just when preparing your tax return. You want an accountant that can help you strategize and who is responsive when you want to know the tax consequences of the decisions you are making throughout the year.

    Good luck and let me know if you have any questions.

    404-482-3170
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  • Cara Powers
    Accountant · Albuquerque, NM · Member since 2019 · 43 posts · 30 votes
    6y

    @Tara Baldauf

    Congratulations on getting a live-in flip done in 6 months. That shows dedication. That said, I second what @Bill Hampton said, getting a real estate specialist who will be responsive all year is better than getting someone local. 

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y

    @Tara Baldauf

    Live-in-flips benefit from section 121 exclusion but only if it was owned and lived in for 2 years.
    In this instance, you won't be able to take advantage of section 121 since you only lived in the property for 6 months.

    [email protected]917-280-8544
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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Basit Siddiqi

    Isn’t there also the issue that OP “probably/could have” used the sec121 exclusion within the past two years for the other residence just sold having lived in for 3 years?  So, would need to live in this residence for 2 years and “1 day” since you can only use the exclusion once every two years, right?

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y
    Originally posted by @David M.:

    @Basit Siddiqi

    Isn’t there also the issue that OP “probably/could have” used the sec121 exclusion within the past two years for the other residence just sold having lived in for 3 years?  So, would need to live in this residence for 2 years and “1 day” since you can only use the exclusion once every two years, right?

    Correct, a section 121 exclusion can only be used once every 2 years.
    Not enough facts in their story to determine what can/can't be done.

    Did they already sell the other property?
    Did they sell it and utilize section 121 exclusion(maybe there was no gain, who knows)
    Maybe the first house that they owned for 3 years was a decade ago

    [email protected]917-280-8544
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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Basit Siddiqi

    Thanks for the clarification, and all good points that there isn't enough info.  Lots of assumptions to be had...  Take care.

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  • Tara Baldauf
    OP
    Member since 2020 · 2 posts · 0 votes
    6y

    @Basit Siddiqi I sold my previous house after 3 years for a $50,000 profit In April of 2020 and immediately bought the live in flip I am currently in. 

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Tara Baldauf

    @Basit Siddiqi

    That answers that...

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