What to do with profit - options welcomed.

Question

Hello,

BLUF: I would like your opinion of what to do with $30-50k of profit from a flip.

Long story Short, bought a home in Dec '21 for $125k(my cash), put $75k(my cash) into reno and am looking to sell between $250-260k in the next 2 weeks.

After fees I'm looking to make a profit of $30-50k, if not more. I'm long distance, love my area I'm working in, have a good team and this in my second reno(first one was a rental that I'll be holding onto)

I don't want to BRRRR this one or keep, #s don't make sense in this area as they do in others.

So what are my options to best utilize the profits and avoid taxes?

1. 1031 exchange for another flip? (Though I have heard flips are iffy with the 1031, any help is appreciated)

2. Buy another reno and put that money into the project (flip or rental) in order to get some write off from it.

3. Just suck it up and put 24% aside to pay the tax man.

Notes:

My W2 is around 85k taxable.

My real-estate LLC is around $5k taxable plus this flip($30-50k)

I assume I don't need to worry about the $200 of my cash I put in for taxes and 1031 exchange issues. All expenses documented and kept.

Thanks for the help.

Gabe

Randall Alan · Answer

If you already have a closing set and don’t have a property identified for a 1031 exchange you are way behind the power curve.  Keep in mind that none of those funds can come directly to you for a 1031 exchange, and your purchase has to be an increase in value.  I’m not a 1031 expert, but know some of those basics.

If you held it for another 6 months you could drop your tax bill from 24% to 15% to get long term capital gains.  Maybe do a short term rental, or even hold it empty… listing it in November or so and closing after the 1 year hold? Personally we just pay the taxes and go on.  Yes, 1031’s can keep you from ever paying the taxes if you die holding the property, but otherwise you are just stacking the taxes from your first sale on top of the eventual taxes from your 1031 property.  It’s more complication than I want to deal with - which is maybe another way of saying I can afford the tax hit.  If I couldn’t, I might be more motivated to make the 1031 happen.

All the best!

Randy

Gabriel Miritello · Answer

Gentlemen,

Thank you for weighing in. I think the best way to go is what you said in pay the taxes and move on. Thank you very confirming what I didn't want to believe

Gabe