Fix and flip business -buy and hold tax structure

3 Replies

I am hoping to do fix and flips to generate cash to buy some buy and holds preferably BRRR.

I plan on setting up two business structures for tax purposes.

My question is what business structure would be good for the fix and flip business to operate under so that I minimize my taxes owed but also allows me to refi/ get loans for by buy and hold business. 

For flips you want to have an LLC elected to be taxed as an S-Corp.

Rentals you would want to keep separate as they are taxed much differently. 

With that being said I’d suggest consulting with a CPA for professional direction.

@Rigo V.

Flips in an LLC S Corp as @Brian Garrett suggested— salary and dividends mix. NJ has some screwy taxes for corps so definitely verify with an attorney/cpa. Salary Deferral and profit sharing should also be available in the business. 

I like my “buy and holds” in an Ira or 401k for the best tax benefits based on my circumstances. 

@Rigo V.

To comment on the response above, keeping activity separate because they are taxed differently is not the best way to structure the entities. Even if you have two activities ( flips and rentals) under one entity, they will still be taxed differently and having them in one entity does no harm to taxes. Meaning you will not owe more just because you have them in one entity.  

However, it is recommended to separate the activities as both of them have very different risk profiles. 

For the beginners, to be very honest, It should not be complicated. From tax perspective:

1) Flips - Generally, If you expect to make more than 50k in a year from flips, S-corp will save you SE taxes ( 15.3%).

2) Rentals - LLCs are the best for rentals. Sometime S-corps are appropriate if you are converting you appreciated home to rentals, but not very common.