How could I avoid paying a lot of tax on capital gains through a fix & flip?

[Abraham Berkowitz]

Hi 

I just went in to contract on my first fix & flip in Scranton Pennsylvania, and I am looking for straragies how to avoid paying big taxes for the capital gains, (beside of deducting of the expances).

I heard that if I am buying a property through an LLC and then I am selling the LLC not only the house that could help, but I am not sure how to do it or it's really working, could someone with experience help? Thank you so much.

[Mike Dymski]

Live in it for two years as your primary residence and sell it tax free.  Do that every few years and you can build wealth (and experience).  I did that with my first two primary residences.

[Michael Plaks]

@Abraham Berkowitz

I suggest you focus on making money on this deal and not on reducing future hypothetical taxes. 95% of first-time flippers lose money on their first deal once everything is accounted for.

[Account Closed]

Quote from @Abraham Berkowitz:

Hi 

I just went in to contract on my first fix & flip in Scranton Pennsylvania, and I am looking for straragies how to avoid paying big taxes for the capital gains, (beside of deducting of the expances).

I heard that if I am buying a property through an LLC and then I am selling the LLC not only the house that could help, but I am not sure how to do it or it's really working, could someone with experience help? Thank you so much.

 Hold for over 12 months or live in it for more then 2 years. Dont let taxes distract you from making money. I have done this and lost thousands in the past. Not worth it! 

[Bernard Kelly]

 Flic and Flips don’t typically qualify for 1031 exchange tax benefits. However, it is possible to turn a fix-and-flip property into an investment property and qualify for a 1031 exchange if it is held for at least one year. This would qualify the property for long-term capital gains treatment. also, if you command decent rents, it’s going to help you flip that property at a higher price point with solid tenants.

I also agree with the sentiment that if you decide to flip it and pay tax that’s a good problem to have because it means you made money on your flip and that’s the goal!

[Michael Quarles]

Fix n flips are typically dealer status income not capital gain.  

If memory servers me the key word is intent. Intent determines the difference.  

As mentioned residency 2:5 goes a long way in helping assuming 250/500 or less 

Btw the 500 consult fee you would pay a CPA is work every penny.  

[Jason Malabute]

Abraham, for your fix-and-flip property, it’s important to note that these projects are typically taxed as ordinary income rather than as long-term capital gains. Since you’re not planning to live in the property as your primary residence for at least two out of the five previous years, you won’t be able to exclude up to $250,000 (if single) or $500,000 (if married) from the gain on the sale of the property. This exclusion is only available for properties that have been used as a primary residence for the required period.

Additionally, you won’t qualify for 1031 exchange benefits or long-term capital gains advantages unless you hold the property for more than a year or live in it for at least two years. Given that your primary goal appears to be generating cash from flipping, there aren’t many tax advantages available in this scenario. Instead, it might be more beneficial to focus on maximizing your profits from the flip. You can then consider using those profits to invest in a buy-and-hold property, which could provide more favorable tax treatment in the long run.

[Ashish Acharya]

There is no Capital gain when you flip. You will pay ordinary taxes and also self-employment taxes. LLC will not save your taxes.

Depending on your other income and net income from flips, you might benefit from S-Corp and all the tax planning that goes with that.