Buying our flip and taxes

Tax, SDIRAs & Cost Segregation
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Buying our flip and taxes

Joe Stubbe
Investor · Scottsdale, AZ · Member since 2020 · 12 posts · 6 votes

We have a flip that we completed and like so much that we are considering moving into it for a personal residence and refinancing it to a primary. Are there any tax implications since it's currently in an LLC and will be transferred to our personal name at close? I realize this may require a tax pro but wanted to get an initial pulse from this community first. Thank you!

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Joshua ThompsonBusiness Member
Accountant · Melissa, TX (Remote) · Member since 2017 · 210 posts · 135 votes
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There can be a tax implication in one form or another. If your property is in an S Corporation the "distribute" or "sell" or "fixing cost" of the property might impact your tax situation. This all comes down to how you're structured, how the flip cost were accounted for, if there is a partner (you mentioned "we").


If it is an S Corporation and you "distribute" or "sell" the property to yourself, if there is any loss on value, which probably there isn't, know it most likely won't be deductible if it's a related party transaction.  

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  • Joshua ThompsonBusiness Member
    Accountant · Melissa, TX (Remote) · Member since 2017 · 210 posts · 135 votes
    1y

    There can be a tax implication in one form or another. If your property is in an S Corporation the "distribute" or "sell" or "fixing cost" of the property might impact your tax situation. This all comes down to how you're structured, how the flip cost were accounted for, if there is a partner (you mentioned "we").


    If it is an S Corporation and you "distribute" or "sell" the property to yourself, if there is any loss on value, which probably there isn't, know it most likely won't be deductible if it's a related party transaction.  

    Thompson Tax Group LLC550 Reviews
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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    1y
    Quote from @Joe Stubbe:

    We have a flip that we completed and like so much that we are considering moving into it for a personal residence and refinancing it to a primary. Are there any tax implications since it's currently in an LLC and will be transferred to our personal name at close? I realize this may require a tax pro but wanted to get an initial pulse from this community first. Thank you!

    I will assume that your LLC is just an LLC, not an S-corp (in that case, see what @Joshua Thompson said), and "we" is you and your spouse. I also assume from your profile that you live either in TX or in AZ, and both of them are community property states which matters.

    If all of my assumptions are correct, there are no tax consequences. Your LLC is the same as you for tax purposes, technically called a disregarded entity. Transferring between your LLC and your personal names changes nothing. 

    Rehab costs are not deductible, other than interest and taxes. And deducting this interest and property taxes may not even change your overall income tax, depending on your tax situation.

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  • Joe Stubbe
    OP
    Investor · Scottsdale, AZ · Member since 2020 · 12 posts · 6 votes
    1y

    Yes it’s a single member llc. No partners. Good info guys, thanks.  

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  • Andrew Strauss
    Accountant · Pasadena, CA · Member since 2014 · 102 posts · 36 votes
    1y

    Hi Joe - For a single-member LLC, the IRS disregards the LLC as a separate tax entity which means no capital gain impact on transfer.

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  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes
    1y

    Joe, if you're transferring a property from an LLC to your personal name, the tax impact generally depends on the structure of your LLC. Since it's a single-member LLC, the IRS disregards it as a separate tax entity, which means there typically aren't any capital gains or other tax consequences when moving the property to your personal name.

    However, keep in mind that if you have financed the property, transferring it may impact the loan terms, and expenses like interest and property taxes might not significantly affect your overall tax situation.

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