First Flip, what to do with profit from flip?

Question

Hello everyone, made a post on here already about doing my first flip so wont get into the details about it.

Something that I have been trying to figure out or learn is, what are my options with what to do with profit from the flip in terms of taxes.

How much of the profit will be due on my taxes (generally speaking)?

Is there something I can do with the profit to not pay taxes on it? would a 1031 apply and be an option?

Any help or direction would be greatly appreciated. Thanks!

Dave Foster · Answer

Exactly right @Peter Mckernan.  In order for a property to be eligible for a 1031 exchange @Junior Francica you must have purchased it with the intent of holding for investment use.  A property you purchase to fix and sell does not count as the intent to hold for investment.

And while there is no statutory holding period.  You must be able to demonstrate that intent to hold and that something happened to cause your intent to change.

A lt of my investors over the years have simply slowed down their fix n flip model slightly so they can qualify for 1031.  They will buy and fix a property and then rent it for a year.  While it is rented they will refinance it to get the cash for their next project.  Once a property has seasoned for a year (a pretty safe time) they will then sell and do a 1031 to buy their next property - and so on and so forth.

Jake Baker · Answer

@Junior Francica Every time you purchase a flip, many purchase costs are involved - paying the insurance premium upfront, inspection and appraisal fees, closing fees to title and escrow, etc. These can all be written off in the year the expenses occurred.

My point - If you can close on another property to flip before the end of the year, These purchase costs can offset some of those gains.

Mike Dymski · Answer

I did a few live in flips when I got started and saved big time on taxes through the primary residence exclusion ($0 tax).  It made more financial sense and was much easier than flipping more houses and paying taxes on ordinary income.  There is no rush, can do some of the work yourself, get low rate owner occupied debt, and often low down payments.

Peter Mckernan · Answer

You cannot 1031 a flip.. That would be a huge loophole where every flipper would get rich so the IRS does not allow that option.

Profits will be hit by personal income tax if the house is in your name and 21% if they are being flipped in your LLC.

Roll the proceeds into the next flip and keep going!

Bob S. · Answer

What to do, buy another, and talk with your accountant. Also KEEP some for rentals. Do not flip them all, Wealth is built not flipped. Biggest mistake I made of my life, not keeping 50 or so of the 500 I flipped, cost me millions,

Jose Jacob · Answer

You will have tax benefits if you are buying the properties under a corporation. S corp or LLC will  help you to offset some of the expenses. Or you can buy a rental property with the profit or buy more to flips. I concentrate on more flips with less margins rather than few flips with huge margin. You pay more in taxes when you have huge profit within short time period. Everyone's tax brackets are different.  Your CPA can guide you

Peter Mckernan · Answer

Also, just note above, I am NOT a CPA check with your own to confirm your tax implications

Junior Francica · Answer

Thank you everyone for the input and help!

Junior Francica · Answer

Definitely something I want to do, thanks for the reminder.

First Flip, what to do with profit from flip?

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