Using Fix and Flips to Offset BRRRR Losses

[Amit Chawla]

So I started a investment company for real estate. The strategy of the company is to mainly do BRRRR deals. Along the way I have come across a lot of deals that would be great fix and flips but was wondering how the income would work when it comes to taxes. The idea is that the BRRRR properties would generate a paper loss yearly (with depreciation, etc.), would I be able to use the "loss" to offset any profit I make from a fix and flip in the same year?

Example:

Purchased 12 unit apt building.  After renovation and cash-out refi and cost segregation study, will show a significant loss (est. 150-200k loss), can I do a fix and flip that makes roughly 100k in profit.  If so would I have to pay taxes on the 100k profit considering I show a loss from the buy and hold property?

Just looking for clarification.  I am planning on meeting with my CPA soon.

[Jeff Copeland]

As a general rule, you can't can't offset active gains (from flipping, other short term gains, or from  employment) with passive losses (from real estate, stocks, or whatever). 

 In order to take passive real estate losses against active gains, you would need to qualify as a "Real Estate Professional" in the eyes of the IRS. The requirements include the following:

- Real estate has to be your primary job

- You have to do it for at least 750 hours

If you have another job, it becomes difficult to qualify. Because however much time you spend in your other job (let's say it's 20 hours per week, which equates to 1,040 hours per year), you have to exceed that in real estate (because it has to be your primary job). 

The most comprehensive guide to qualifying for REPS I've found is at https://www.therealestatecpa.c...