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Rehabbing & House Flipping

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Will F.
  • Investor
  • Los Angeles County, CA
274
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958
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How to pay less taxes? 1 silent funding-1 active proj manager

Will F.
  • Investor
  • Los Angeles County, CA
Posted Sep 25 2015, 13:09

Hi.

I understand with flipping you have to pay ordinary income taxes on the profit.

Could anyone explain how taxes would be for a partnership, in which profits would be divided 50-50 in the following scenario: 

==one partner (the funding partner) is already in the top income bracket and completely funding the deal, but is not active in the management of the flip. He has his own W2 and jobs separately and is not an active flipper.

==one partner (the project manager) found the deal and completely manages the project, etc. he's more of an active investor and is in a lower income bracket than the funding partner.

Let's just say the profit is $100k on a 1 year flip.

Are there ways to reduce taxes for the higher income funding partner?  Could the funding partner possibly pay the project manager a salary to reduce the funding partner's taxes? 

 Or could funding partner set it up as a loan in which the split profit is payment for the debt? (would debt in this case be taxed as long term investment / capital gains?)

Are there any other ways to avoid income taxes on the profit?

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