Stillwater, MN · Member since 2015 · 25 posts · 3 votes
Before I start I will definitely be talking to a CPA about this, just want to make sure I am not going into the conversation blind and have good questions to ask.
To start with everything will be run through an LLC and I do know any profit is taxed as pass through income. The goal is to minimize the tax and maximize my ability to continue to increase investments.
For profit realized from a flip, if I rolled the profit into the next property do I still have to pay tax or is that deferred, similar to when realizing appreciation on a primary residence upon sale?
If I roll all profit from rents received into another property will I have to pay tax on the gains?
Is there a time limit for either?
Just trying to keep as much in my pocket as possible.
Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
10y
your profit on rentals will be minimized through depreciation if at a certain income. but that will have to be paid back when you sell.
but it's the whole time value of $ thing so nice to get an interest free loan from the government.
and any capital improvements are depreciated over the life of the product. so a $4k roof replacement means you will "spread out" that expense over 20-30 years so your profits will be larger during that time.
Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
10y
Adding to what wasn't covered by other responses, LLC's are not necessarily taxed as pass-through entities. The IRS allows you to elect how you want them taxed. For flipping, I'd strongly consider electing to be taxed as an S Corp, as it will enable you to pay out some of your profits as distributions, avoiding the 15.3% tax of self-employment income.
Stillwater, MN · Member since 2015 · 25 posts · 3 votes
10y
Thanks for the insight. Very much like the idea of the S-corp election, it is something I current do with a different business and makes perfect sense.