Entity for a new flipper

[Jaden Ghylin]

I just broke the RE investors code. I jumped into flipping a property without having all the details hashed out ahead of time. I came across a good deal and had to move, so now I've got a property that's almost through rehab owned in my name and I need to figure out how to sell it without incurring massive taxes. I've seen some posts claiming taxes as high as 50% if SE and state tax is included. I'm in Minnesota, so state tax is a major factor also.

I've got a few questions. What happens if I just sell it as a sole proprietor as it sits right now and turn around and buy a rental property with the proceeds? Will I still pay short term cap gains on it (I'm almost certain the answer is yes. The rental will just give me some deductions to take against it)?

Can I transfer it into an LLC, then sell it? Does this help me roll the cap gains into the next property?

I'm also looking into self-directed IRA for flips, but I don't think I'm ready to jump into that on this one.

How are you shielding your short-term cap gain income from taxes? Please offer your insights.

-Jaden

[J Scott]

Short answer: If you flip houses, you'll pay pretty much the same taxes as you would on ordinary income. While some of the tax burden can be mitigated with the right business entity, for the most part, you can't afford getting hit hard by the tax-man when flipping houses.

And, if this is your first flip, unless you're making an extremely large profit, there is pretty much nothing you can do to avoid any taxes on this property, regardless of what entity you had holding it.

My recommendation would be to finish this one out in your name, and then consult with a CPA about setting up an entity for subsequent flips.