Taxes on Investment Fix and Flip

Tax, SDIRAs & Cost Segregation
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Taxes on Investment Fix and Flip

Jamel Driver
Hackensack, NJ · Member since 2014 · 10 posts · 0 votes
whats the best way to pay out proceeds from the sale on a fix and flip for tax purposes for people that was involved in the investment?
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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    8y

    @Jamel Driver , 

    How did you conduct the Flip? Was there any entity involved?

    If you just borrowed a money, it is treated as a loan for you and you might be able to deduct the interest via the basis in the house you Flipped. There is no tax implication when you pay back the loan. 

    If they were equity partners, they share Profit and Loss based on your agreement. 

    We dont have the full picture to provide you with the answers. 

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    8y

    @Jamel Driver

    How to pay out proceeds to various parties should likely be discussed prior to starting the flip.

    Were they partners expecting a certain percentage of the profits?
    You may have a partnership return filing requirement and have to distribute a K-1 to those people.
    I would issue a check out of the bank account where the proceeds were distributed from the sale


    Were they investors just lending you money?
    You may need to issue them a 1099-INT.
    I would issue a check out of the bank account where the proceeds were distributed from the sale


    Were they helping out by fixing up the house?
    You may need to issue them a 1099 or a W-2.
    I would issue a check out of the bank account where the proceeds were distributed from the sale

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  • Jamel Driver
    OP
    Hackensack, NJ · Member since 2014 · 10 posts · 0 votes
    8y

    Thanks Basit Siddiqi

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  • Jamel Driver
    OP
    Hackensack, NJ · Member since 2014 · 10 posts · 0 votes
    8y
    Originally posted by @Ashish Acharya:

    @Jamel Driver , 

    How did you conduct the Flip? Was there any entity involved?

    If you just borrowed a money, it is treated as a loan for you and you might be able to deduct the interest via the basis in the house you Flipped. There is no tax implication when you pay back the loan. 

    If they were equity partners, they share Profit and Loss based on your agreement. 

    We dont have the full picture to provide you with the answers. 

    We bought the property through an LLC which we set up prior to borrowing funds from a hard money lender, rehabbed the property and sold the property to a buyer who was interested in the property after listing it on the market. There was 3 of us on the LLC

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  • Carl FischerPro Member
    Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
    8y

    It sounds like the bank would paid off at closing and the LLC would have the profit and any return of investment mone.y. Profit will be provided to the 3 members based on percentage of ownership. Any salary will be paid before profit is divided. Most will minimize W2 income to save SSMedicare expenses. K1s if LLC is set up as S Corp filing.

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