Fix and flip tax help!

[Michael Bieler]

Hey guys hope someone can help me. I am flipping a home, which It is to my understanding that I can not 1031 it. I'm curious as how I need to structure/ save for taxes on the sale. Here is a small run down, I formed an LLC in Indiana (where the property is) purchase with renovation and closing was $122k. Hard money lender is costing me around say $6000 interest only for this loan. Hoping to sell for $195k. Assuming 6% realtor fees and closing costs for selling estimate another $20k expense. Let's just say $45k net… how will I be taxed? A few friends who flip say I am not considered a "dealer" as this is only 1 flip so would I just be taxed as short term gains of 15%? If not,am I taxed as regular income ? I believe 24% tax bracket, plus NYS 6.25% (or would it be indiana ) plus a 15.3% self employment tax? Seems very high! If that's the case how can I minimize this? I have seen that opening a self directed IRA would help slightly. Depending on what you believe I would be taxed, Another option would be to throw a mortgage on the property and rent it out for a year, and THEN 1031 it. Let me know your thoughts! Thanks!

[Michael Bieler]

Quote from @Dave Foster:

@Michael Bieler, Yep the tax even on one flip is a killer!  You'll have to run a comparison between the cost of carry (PM) vs the tax you'll pay.  But you could also get a renter in there and do a refi.  The additional rent income might help with your income needed for loan qualifying.  

If you can make the hold numbers work then a "slow flip" (although I discourage folks from ever using the "F") word, would be your ticket.  

Put a renter in, refinance the property to get your next acquisition, and wait for a year to do a 1031 on this one.  During that time you're making income. from cash flow, amortization of the loan, depreciation benefit, and appreciation.  And you're busy with your next acquisition anyway because you did the refi.  Once you get this daisy chain going you'll be busy as a beaver making tax deferred income the rest of your life.

Thanks for the input. I was thinking of throwing a renter in, I don’t think it will actually cash flow. Maybe break even monthly. I’m in a good flip area, but not so much for a brrrr.   Tough choice to make lol