Exempting Capital Gains when a property is owned under an LLC?

Question

I am closing on a SFR in January that I plan to live in. I am curious if anyone has ever successfully been exempt of Capital Gains Taxes when completing a "Live in flip" even if the property is owned an LLC? From what I read online, as long as it is a single member LLC then it shouldn't be an issue.

Also, will I be able to qualify for a Homestead Exemption if I own the property an LLC?

Can anyone confirm? Has anyone done this?  Thank you and Happy Holidays!!

Michael Carbajal · Answer

Went to my CPA and found the best route to go. @Michael Plaks , you were spot on for everything.

I appreciate the knowledge!

Michael Plaks · Answer

@Michael Carbajal

Your post leaves a lot of room for guessing. I have to make assumptions, just like everybody else:

1. You're buying a discounted property that needs a lot of work. Nothing wrong with that, this is what every flipper does.

2. You're planning to sell it right after rehabbing it. This is one of the many possible exit strategies. It is debatable and depends on your financial situation, on your goals, on the property etc. Maybe it's better to not sell it or maybe not even to rehab it, but it's a completely different conversation, and you did not ask this question.

3. You're planning to live in this property while working on it. This is a lifestyle decision first and foremost. Living in the middle of an extensive construction is not for everyone. If you have never done it before, beware, especially if there's someone else to share this home with you, 2-legged or 4-legged.

4. You're hoping that the rehab will be profitable once completed, after all costs are taken into consideration. This is far more difficult to accomplish than HGTV or even BiggerPockets make you believe. 95% of new investors lose money on their first flip projects.

5. You're worried about taxes on the profit you expect to make on this property. This is a completely premature conversation, frankly. But it is possible to avoid taxes on such profit under the right circumstances. Let's discuss this when you are close to completion, not today.

6. You intend to purchase this property inside an LLC. An unnecessary and potentially even counter-productive move, based on what little I know about your plans. It will complicate closings and financing, raise your insurance, and probably will not create any benefits. I'm afraid that you believe that an LLC is required in order to deduct any expenses, and it's not true. There's a chance that an LLC is warranted in your specific case, but it would be an unusual case then.

Happy Holidays, and best luck

Suzanne Player · Answer

These forums are very valuable for getting certain kinds of advice - but legal advice and accounting advice (including tax questions) are not among them.  Reading even the best books and listening to even the best podcasts is also not a substitute for qualified advice from your own attorney and/or CPA.  You’ll need a CPA and at least 1 attorney on your team, now is the time to find them.

Good luck on your flip

Ahad Ali · Answer

You definitely need to speak with a CPA before progressing any further. While forums like these can have valuable information, they may not apply to you in the exact same manner. You should never go solely off of what these forums say, just use them as reference and information pool.

Basit Siddiqi · Answer

The question is why would you want to create an LLC for a live-in flip.Live in flip is personalLLC's are for business activitiesHas anyone guided you and informed you that an LLC will protect you?

Suzanne Player · Answer

Hi Michael

You definitely need to get specific personalized advice from a CPA for your tax planning and for setting up record keeping.  You’ll want to get references for experienced people in you area.  Don’t waste your time on the internet for this type of thing, even the forums won’t be able to do this for you.  It will save you money and time.

Steve Morris · Answer

LLCs are usually just pass-thrus for any gains depending on your operating agreement.GO ASK A CPA.

Exempting Capital Gains when a property is owned under an LLC?

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