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Updated over 8 years ago on .
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Tax implications of renovating a long-term rental to sell??
I am a small-time landlord with 6 SFH rentals, all of which were purchased to be rentals (retirement income - I spend an inordinate time worrying about retirement lately) and all have been rented since purchase. I was reading Amanda Han's Book on Tax Strategies, and was surprised to read (on p. 104) that "Fix-and-flip properties are not generally eligible for long-term capital gains tax rates, regardless of how long you own the property before selling it."
I've looked through the capital gains threads in this forum (thanks @J Scott, Brandon Hall and others), and am still not sure of the answer to my particular concern. I've sort of been thinking that I might do a big renovation in a few years on the property I've had longest (nearly 15 years) -- it's the smallest house with the lowest rent, in the most rapidly appreciating neighborhood -- and then sell it. Or I might not. Surely having considered a flip as a possible exit strategy doesn't negate the intent to buy-and-hold. Or does it? (if so, I totally blame BP for the idea!)
My questions are:
1) Does a big fix for the retail market automatically put profits into the "ordinary income" flip category?
2) What if I've moved into in this house as my primary residence for 2 years (kids will both be in college) before the renovation and sale? Does that change things?
3) What if I do a big fix on my own personal residence (treat it like a luxury flip) prior to selling? It's another long-term hold (20+ years) in a super hot neighborhood -- can I rent it for a year, renovate & sell and still be taxed as gains on a personal residence and not the ordinary income flip rate?
Most Popular Reply

@Anna Watkins,
1) No it does not. That is completely different when you've held the property as a rental. The issue pertains to properties that you acquire and then sell. If you are holding it for rent that is different.
2) Your residence is a primary choice to flip every 2 years or so.
3) You can do the same thing with your personal residence.
A renovation before sale is common. The issue is purchase and immediately trying to sell it.