Flip & Taxes - Capital Gains?

Question

So I did my first flip. Worked out great. Bought it for $225k. Put another $125k in it. Sold for $450k. 6 Month time frame. Now... it's treated as a short term capital gain..... what can I offset it by? If I bought a truck through the LLC that the property was under, is it tax deductible? OR is the transaction treated singularly?

Wayne Brooks · Answer

@Joe Farruggio Flipping income is not short term cap gain....it is taxed as ordinary income, including the 15.3% med/ss.

The section 179 depreciation for vehicles/equipment has it’s own requirements, including the % of time the vehicle is used for business.

J.C. Martel · Answer

Thanks for adding clarity, Wayne.

Question for you all - I am planning to use flip proceeds to pay off my vehicle under Sec 179. My flip is done in a s-corp and rentals are held in an LLC. How should I deal with using flip proceeds in the s-corp for the vehicle, yet using that same vehicle for managing the rentals in the LLC? From a tax accounting and documentation standpoint, does anyone have advice?

Basit Siddiqi · Answer

If you purchased the truck and used it for the business, then yes, you may be able to reduce your income.You should have documented the miles that you were driving the truck.

Larry Turowski · Answer

@Joe Farruggio The best way to reduce your taxes is to lose that gain. Do another flip and lose money.  Just kidding! Taxes generally mean you made money. That's a good thing. You did really well. We all want to minimize our tax footprint, but there isn't much you can do in this case.

Corby Goade · Answer

I'm not a CPA, so please take my thoughts with a grain of sand- if you reinvest your profits, that doesn't elimiate your taxes, it offsets them as another expense. In theory, you could greatly reduce your tax liability doing this, but you would have to "go big" pretty quickly to keep chasing that- at some point, you'll have to pay the piper. There's no scenario where you can flip a property and not have to claim that income, but you can offset it through business expenses.

Flips are ordinary income and are taxed as such. You don't get the immediate reward, but the best bet is to reinvest your gains in depreciable assets, such as rental properties, which will offset your gains over time. There's always the option for cost seg, too- depending on what asset you invest in.

Best of luck!

J.C. Martel · Answer

Joe and Wayne, my understanding is that in an s-corp we avoid the 15.3% tax when flipping. I plan to use Sec 179 for the vehicle write-off, keeping records on mileage for business and personal. Also my understanding is that if you do another flip before the end of the year and your money is invested at years end, then you don’t claim capital gains for this year because the money has been reinvested.  Also keep good documentation on the basis, including initial investment, closing costs, etc. I just printed a list of basis items to make sure I don’t miss any, and I’m keeping records on each item in case of an audit. Any other helpful tips are appreciated!

Devante Henry · Answer

if the vehicle is used for the business then it can be taxed together

J.C. Martel · Answer

Great question, curious if you found an answer. I’m in the same boat.

Flip & Taxes - Capital Gains?

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