Tax Implications - Using Flip Profits to pay down HELOC

[Annette Wanamaker]

Hello, BP land!

I've just purchased my first long term rental and am looking at next steps. I used a HELOC on my primary home to finance the down payment for this first property. I am considering a fix-n-flip next to use the profits from that flip property to pay down the HELOC balance. What are the tax implications in this strategy? Will I be paying capital gains if I'm not putting that profit directly into another RE investment? Thank you for your expertise and willingness to share!

[Steve Vaughan]

Originally posted by @Annette Wanamaker:

Hello, BP land!

I've just purchased my first long term rental and am looking at next steps. I used a HELOC on my primary home to finance the down payment for this first property. I am considering a fix-n-flip next to use the profits from that flip property to pay down the HELOC balance. What are the tax implications in this strategy? Will I be paying capital gains if I'm not putting that profit directly into another RE investment? Thank you for your expertise and willingness to share!

 You'll pretty much just be earning ordinary income.  Selling inventory is not capital gains, which begin after holding for 365 days.

As a tax strategy, flipping is crap, but some do it well and make good money.  To me it's a risky job with high transaction costs and high tax rates.   Do you have a strategy to find a good deal in this market environment?  A good deal funnel?