We are small potatoes!

5 Replies

Did I spell the veggie right?

I know they say to ask your CPA. We have a ordinary tax accountant. He's not sure. I am a Realtor agent making less than $25,000 yearly . We have some nice rentals bring in a net of $25000 a year. We did our first flip and made $15000.  Easy, peasy. A few weeks of work, at most. Now I hear we may be designated as "flippers" and ALL our rental income and sales might be designated as ordinary income. So now, I'm a little wary of doing another quick flip.

Any real life experience with this?  

@Chris Stone if your tax accountant is telling you that, time to get a new one!

Intent is evaluated on a property by property basis. So you can technically operate as a sole proprietor in all of your businesses and not have to worry about converting passive income into active business income if you are flipping, because only the *intended* flips will be subject to self employment tax and ordinary income. Of course as a best practice you should have different businesses separated via entities.

Additionally, it's possible your flip may be classified as an investment instead of a flip. This will save you from self employment tax exposure. You need to get together with a real estate savvy CPA yesterday. While they may be costly, they'll save you thousands.

Hope this helps!

Thanks. I was told I would need to put my rentals in an LLC. I don't want to do that because it's hard to get financing that way.

Paying regular income tax on a few flips a year is not a problem for me. I'm getting to the age where I realize some extra SS earnings can't hurt!

The "dealer" vs. "investor" rules are not only extremely complex but actually vague and subject to interpretation.  A simple fix is to rent the property for a year then sell it.  Then there would be no question that it was an investment property and you would not only avoid self employment tax but also only pay long term capital gains. Lastly hire a tax professional that specializes in real estate and preferably owns some himself, so he can help you plan your strategies ahead of time, for the best tax benefit. Hope this helps, Good luck!

Originally posted by @Chris Stone :

Thanks. I was told I would need to put my rentals in an LLC. I don't want to do that because it's hard to get financing that way.

Paying regular income tax on a few flips a year is not a problem for me. I'm getting to the age where I realize some extra SS earnings can't hurt!

 Why is it hard to get financing that way?

I have almost 20 LLCs, with 15 of them being some kind of "rental" property. I have no problem getting financing, provided I put up 15-20% of the LTV in cash or assets and I also personally guarantee the loans.

Hell no - talk to @Brandon Hall . I think he's been getting some good tutoring lately...and he was a smart CPA to begin with :)

Dude - time to get a CPA. Call Brandon!

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