Flip in personal name or LLC to take advantage of expenses?

Question

We are looking at a live-in flip and want to make sure we're able to write off all the improvement expenses when we sell it.  Is it best to have the property in an LLC or our personal names?  I wasn't sure if we'd be able to deduct all the improvement expenses from our profits if it's in our own names-

Natalie Kolodij · Answer

LLC vs Personal names generally has no impact on expenses

HOWEVER if you're looking to do a live in fix flip I'd typically recommend keeping it in your names

If you own and occupy it 24 months then all of your profits up to $500k will be tax free. All improvements increase your basis, which will reduce your gain when you sell.

Natalie Kolodij · Answer

No Problem- That's fair. I say "we" and "us" a lot when I talk to people and what I actually mean is me any my bulldog.

I guess I shouldn't have assumed that meant married haha

Good luck and sorry to hear about your tax free quarter mil  only -boooooo.

Hen Ley · Answer

@Natalie Kolodij, Thanks for the insight!  I'm familiar with the 2 year tax advantage, but sometimes other variables haven't made the option of holding something that long a viable option.  Also, despite using verbiage like 'us', 'our' and 'we', I'm actually purchasing something on my own, so even if I held it for two years I'd only be eligible for the 250k exemption...  Boooo!

I have never heard of the partial exclusion, so I'll look into that.  Thanks!

Natalie Kolodij · Answer

Can you....hold it a minute? haha If you wait 2 years you get $500k tax free.

Let me say that again.

You can literally make up to one half. of a million. DOLLARS. That's US American Dollars.

and pay $0 tax.

And you don't like that deal?

You can definitely sell it sooner- the IRS has a handful of reasons that justify a partial exclusion- I'd work with a tax pro on this, make sure you qualify.

But basically if for example-  you occupy it 9/24 months AND qualify for one of the exclusions

You'll get 9/24th of $500k of your gain tax free = $187,500

So I guess...ya I'd still say personal names.

Hen Ley · Answer

@Natalie Kolodij, Thanks so much for your reply.  We anticipate flipping it in less than a year- would you still advise personal names?

Greg Dickerson · Answer

Your account would be the best person to answer this as every situation is different.

Flip in personal name or LLC to take advantage of expenses?

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