How is rental and flip income taxed

Question

Before I start I will definitely be talking to a CPA about this, just want to make sure I am not going into the conversation blind and have good questions to ask.

To start with everything will be run through an LLC and I do know any profit is taxed as pass through income.  The goal is to minimize the tax and maximize my ability to continue to increase investments.

For profit realized from a flip, if I rolled the profit into the next property do I still have to pay tax or is that deferred, similar to when realizing appreciation on a primary residence upon sale?

If I roll all profit from rents received into another property will I have to pay tax on the gains?

Is there a time limit for either?

Just trying to keep as much in my pocket as possible.

Thanks!

Chris Oswald · Answer

Thanks for the insight.  Very much like the idea of the S-corp election, it is something I current do with a different business and makes perfect sense.

Chris Soignier · Answer

Adding to what wasn't covered by other responses, LLC's are not necessarily taxed as pass-through entities.   The IRS allows you to elect how you want them taxed.    For flipping, I'd strongly consider electing to be taxed as an S Corp, as it will enable you to pay out some of your profits as distributions, avoiding the 15.3% tax of self-employment income.

Scott W. · Answer

your profit on rentals will be minimized through depreciation if at a certain income.  but that will have to be paid back when you sell.

but it's the whole time value of $ thing so nice to get an interest free loan from the government.

and any capital improvements are depreciated over the life of the product. so a $4k roof replacement means you will "spread out" that expense over 20-30 years so your profits will be larger during that time.

Matt Devincenzo · Answer

To both the answer is no rolling profits into another property doesn't defer the taxes.