Investor · Lodi, NJ · Member since 2013 · 487 posts · 179 votes
I have a flip project with 2 partners through a joint venture. The property was purchase in an llc I own with a separate agreement stating our purpose, roles, and such.
Question: would the capital gains tax be calculated individually after the profits are disbursed, or do I have to process that prior to disbursement and subtract out the estimated tab amount?
I'm reaching out to my CPA on this matter but figured I'd shoot it out here as well.
I have a flip project with 2 partners through a joint venture. The property was purchase in an llc I own with a separate agreement stating our purpose, roles, and such.
Question: would the capital gains tax be calculated individually after the profits are disbursed, or do I have to process that prior to disbursement and subtract out the estimated tab amount?
I'm reaching out to my CPA on this matter but figured I'd shoot it out here as well.
Talk to the CPA about s-corp options but only if you exclusively plan to flip. An s-corp is not a good place to hold rentals.
Another thing to look out for is if one of the partners is a licensed and bonded contractor and you are hoping to avoid sales tax and B&O tax. Even if one of the partners is a licensed and bonded contractor, you still may have to pay sales tax and B&O (you do in my state). There is a complicated way around this that involves changing the distribution schedule so the contractor total comes out as a draw.
How is that? For time reference, the purchase and sale here is less than 1 year. NJ charged capital gains tax on real estate sales unless you have residence for 2 years within a 5 year period.
IRS says it's inventory, in a business activity, not a long term investment.....subject to ordinary income tax, including both sides of SS/Med (15.3%).
Ok. Would that be reconciled at the individual end after all profits are disbursed, or would my LLC take the entire hit as the purchase entity?
Thanks for your input Wayne.
Unless you have elected corporation tax treatment for your LLC, the LLC is a pass-through entity. As such, the LLC does not pay any taxes in its own right, but instead, all the LLC income is passed down to the individual LLC members and taxed on their own individual tax returns.
I have a flip project with 2 partners through a joint venture. The property was purchase in an llc I own with a separate agreement stating our purpose, roles, and such.
Question: would the capital gains tax be calculated individually after the profits are disbursed, or do I have to process that prior to disbursement and subtract out the estimated tab amount?
I'm reaching out to my CPA on this matter but figured I'd shoot it out here as well.
Talk to the CPA about s-corp options but only if you exclusively plan to flip. An s-corp is not a good place to hold rentals.
Another thing to look out for is if one of the partners is a licensed and bonded contractor and you are hoping to avoid sales tax and B&O tax. Even if one of the partners is a licensed and bonded contractor, you still may have to pay sales tax and B&O (you do in my state). There is a complicated way around this that involves changing the distribution schedule so the contractor total comes out as a draw.
Much appreciated for the input. Yes, S-corp I am considering for future flip-only projects. This project came up quickly. So I used a general business LLC I have. Not ideal, but did the job for now.
I'll ask around here (NJ) on the contractor partner approach and see if anyone is using this angle to pick their brains as well. Thanks again!