Fixing and Flipping my mothers home!
Member since 2023 · 7 posts · 4 votes
Fixing and Flipping my mothers home!
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Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
8moQuote from @Antonio Martinez-Elizondo:
Hello all!
I have a question for you. My mother just downsized from her home to a condo. She wants to sell the house to me at a great deal (her home is paid in full). She is encouraging me to fix and flip it and use the money to fund an addition on my primary that she knows ive been planning.
She has lived at the house for about 7 years as her primary and I know she wont have to pay capital gains.
So my question is, if I get added to the deed and I fix and flip the home, pay her what she wanted and kept the profits would she still be able to use the capital gains exemption.
We already have an appointment to get me added to the deed, is this a strategic play or am I missing something? Thanks in advance!
You're missing something buddy. Talk to a CPA @Aaron Zimmerman: is a good choice and you already have his attention.
11 Replies
- Real Estate Broker · Atlanta · Member since 2024 · 1k+ posts · 608 votes8mo
Antonio, if you are added to the deed now, that can absolutely impact her capital gains exclusion. For your mom to qualify for the primary residence exclusion, she must meet the 2 out of 5 year ownership and use test. If you are added to title before the sale, part of the ownership would shift to you and that portion would not qualify for her exclusion because you have not lived there as your primary residence.
I would strongly recommend speaking with a real estate attorney and CPA. Once you change title, you can’t easily undo the tax consequences.
This is a good question for a tax CPA, not BP, but Ill give you the short version: Your moms capital gains exemption is tied to her ownership and use. If you get added to the deed and then flip it, you dont inherit her exemption on the profit -- thats on you. She was there 7 years, so shes clean on her sale proceeds. Your piece gets treated as a new cost basis.
The tricky part is if youre actually her beneficiary on a flip, it can look like a partnership to the IRS. If shes selling to you at a discount and youre keeping the profit, that structure matters. Better approach: Let your mom sell it to you at fair market value, she pays nothing on tax, and then you own it outright. You flip, you pay tax on your profit. Clean and simple.
Also -- before you add yourself to the deed, talk to her mortgage lender or title company. Assuming its paid off (you mentioned that), no issue. But the timing of when you go on the deed vs. when you close on a loan later matters. If youre getting financing to flip it, adding yourself first can complicate approval. Are you planning to use hard money for the rehab, or are you going to pay cash?
- 8moAaron ZimmermanBusiness MemberAccountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
I would recommend connecting with a cpa to make sure everyone gets the intended outcome their looking for. I think there's better way of structuring this personally and there's a lot of factors to consider.
Brick House CPAs53 Reviews - 8moTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Talk to an accountant. I am NOT an accountant, but throwing an idea out there....what if you do the renos, you pay for those costs and split the profit. See if you can keep it all in her name but you effectively do the work for her, loan her that money and she then returns it after the sale along with a gift (you half of the profit)?? Again throwing the idea out there, check with an accountant.
I'd also ask if you have siblings? If you do, this could lead to problems with them as they will feel you are getting a large amount of money and they aren't.
- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes8mo
Quote from @Antonio Martinez-Elizondo:
Hello all!
I have a question for you. My mother just downsized from her home to a condo. She wants to sell the house to me at a great deal (her home is paid in full). She is encouraging me to fix and flip it and use the money to fund an addition on my primary that she knows ive been planning.
She has lived at the house for about 7 years as her primary and I know she wont have to pay capital gains.
So my question is, if I get added to the deed and I fix and flip the home, pay her what she wanted and kept the profits would she still be able to use the capital gains exemption.
We already have an appointment to get me added to the deed, is this a strategic play or am I missing something? Thanks in advance!
You're missing something buddy. Talk to a CPA @Aaron Zimmerman: is a good choice and you already have his attention.
Dont put your name on the deed first. OR when you sell you will have to pay all of your moms capital gains. You'll inherit her basis. Not good.
If you don't buy it at a fair price you'll owe the IRS the difference capital gains when you sell.
Depending on how long she owned it and what she paid. What is the house worth? Your mom is only exempt on a sale gain up to 250k. If she sells and it's worth a million she will owe 23.8 percent on 750k (for example). What tier she's in matters. Is she on medicare? In this exmple that will increase too for the year she sells. Talk to a real estate tax pro before you do anything.
You're missing something, and it's more important than the capital gains piece. If you buy the property from your mom and immediately flip it, the IRS can argue that the property never qualified for her primary residence exemption because the intent changed. Capital gains exemptions are based on intent and use, not just ownership duration. A CPA or tax attorney needs to bless this structure before you do anything.
But here's the bigger picture: if your mom wants to help you fund an addition on your primary, there are cleaner ways to do it that don't involve putting her property through a flip. Could she gift you cash? Could you take a personal loan from her? A HELOC on your own home? Those paths avoid the complexity and tax risk of what you're proposing.
Before you get added to the deed, sit down with a CPA who specializes in real estate, not just a general tax person. The cost of a consultation is way cheaper than unwinding a capital gains mess later. Has your mom talked to a CPA about this yet?
- CPA| New Clients Welcome| 50 States · Member since 2016 · 440 posts · 97 votes8mo
@Antonio Martinez-Elizondo, hi. You’re right to pause before changing the deed, because adding yourself to the title before the sale could jeopardize your mother’s Section 121 capital gains exclusion.
The IRS looks at who both owned and used the home as a primary residence for at least two of the last five years, and you would not meet that requirement. Adding you could also be treated as a gift of equity, triggering gift-tax reporting and affecting your cost basis. In many cases, it is cleaner for her to sell the property directly to you while preserving her exemption. It’s important to structure this properly before recording any deed changes, since reversing them later can be difficult.
- Lender · Chicago, IL · Member since 2025 · 204 posts · 101 votes8moPlease be careful adding yourself to the deed before the sale can impact how the capital gains exclusion is applied. The primary residence exclusion is based on ownership and use, and if you are added to title and then sell, part of the gain could be attributed to you. You would not qualify for the exemption unless you also meet the two year ownership and occupancy test. In many cases, the cleaner approach is for your mother to sell the property directly to you at an agreed price, use her capital gains exclusion if she qualifies, and then you renovate and flip under your own ownership. Also consider gift tax and basis implications if the home is sold below market value. Before making any changes to title, it would be smart to consult with a CPA or real estate attorney to structure it correctly from the start.
Antonio, Ken's right -- this is a tax question you need a CPA on, not BP. But here's the practical reality: if your mom has owned it for 7+ years as her primary, she can use the capital gains exclusion on her gain. But once you flip it, you lose that protection because it's no longer anyone's primary residence. You'd owe capital gains on your profit, and your mom gets hers excluded. So the structure matters less than the intent.
The real question is where do you want the profit to land? If you want her to keep the benefit, you handle this differently -- maybe she sells to you at fair market value, she gets her exclusion on her gain, then you flip and pay capital gains on your portion. Or you two could structure it as a partnership flip where profits split accordingly. Either way, a CPA can show you the tax impact before you close and get added to the deed. That deed addition is a big move -- it might affect both of your tax positions down the road.
Has your mom already consulted with a CPA about her capital gains position, or is this your first conversation about the tax side of this deal?
- Member since 2023 · 7 posts · 4 votes8mo
Thank you all for your input! After further review, you all are correct. I think the best route and cleanest route is just for her to sell it to me through seller finance. I'm either goings to do a live and flip after 2 years or turn it into a rental. Either way purchasing it from her is the right move.
To give you guys more insight on the numbers, she paid 105k cash for the home, she wants 140k from me its worth 215k as it stands. ARV will be closer to 285 with minimal rehab. Thanks again for all your replies!
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