Avoiding the tax penalty

7 Replies

Hello everyone! I was sitting here wondering what's the best way to do this. I've just completed my flip house and am walking away with a decent profit approximately $50,000. My question is what's the best way to take that profit and minimize the tax burden. My goal is to reduce some of my debt with the proceeds otherwise I would do a 1031 exchange. Any advice out there? Thank you in advance

A typical flip (held primarily for resale) wouldn’t qualify for a 1031 exchange. But congrats on your profit! Sounds like it was a successful flip. 

You can not 1031 a flip. Flips are earned ordinary income.  Had you done it in an S corp, that may have saved a little bit in taxes, but that would have needed to be done first.

@Jason Mead

As the others have mentioned, flips are generally ordinary income subject to SE taxes. Flips are also not rental real estate but rather property held for sale are not eligible for 1031 treatment.

Typical strategies for tax mitigation based on the fact pattern include S Corps (there is a cost-benefit here) and Solo 401ks.

Some people get very creative with the way they maximize your deductions for expenses.  Leasing a car for their business instead of buying one for themselves can make auto expense almost entirely deductible. Having a business purpose for every trip and vacation can result in business deductions.  The examples are endless and usually worth considering.

Originally posted by @Davido Davido :

Leasing a car for their business instead of buying one for themselves can make auto expense almost entirely deductible. 

You can only deduct the business portion. For instance, if your car is used 50% for business and 50% for personal, only half of the lease payment is deductible.

If your vehicle is heavily used for business, buying it could be more beneficial for taxes than leasing.

Bottom line on almost every tax strategy: your mileage may vary (both literally and figuratively)