First Time Flipping a House

[Ed James]

I am currently in escrow for my first purchase and I'm hoping to flip in about 6 months. I have a full time job in the construction field and will be doing this part time. I have done a lot of research and have realized it's best, specially for tax purposes, to incorporate or set up LLC. However, I have not done either of the two yet.

Is it too late to start setting up a business?

Is it recommended to start the whole process before escrow?

Most importantly, can the house remain in my name, yet write off all expenses through the business?

[Liam Goble]

I'm not a tax guy or an attorney, but I do have an LLC set up for my buy-and-hold rental business.

From my experience with my first rental, you can try to get the name set properly on the sales agreement, but it may be difficult. You're possibly dealing with to different time frames: one for the sales agreement (say you agree to close in 45 days) and the second is your state's (and the Fed's) to return your paperwork and get all of the announcements posted. If it takes 60 days to get all the paperwork back from the state, you may be out of luck.

From a tax perspective, LLCs are set up as 'pass through' tax entities, meaning any tax liability from the company is passed through to your personal returns. The tax advantage of an LLC (as I see it) is if you were to have multiple non-married people as members of an individual LLC, the LLC returns (K1's on your tax returns) would allow all of the depreciation, profit, loss, etc to be spread depending on the membership of the LLC.

Lastly, so long as you keep detailed records, I would think your tax professional should be able to set up your taxes to show the 'loss' from the improvements to the property. I would assume the improvements would be classified as "Home Improvements" and be deductible similarly to how home improvements are deducted for a home office.