Tax Implications for BRRRR?

[Hunter Preston]

I'm curious what the differences are for tax implications for a straight flip vs. a BRRRR? My understanding is that any profits from a flip will be taxed at my personal current tax rate as income. However, if I'm refinancing and getting an 80% LTV loan, any "profits" after the cash out on the refi would be debt on the 80% LTV loan. Would there be any self income that I need to report to the IRS if the extra money is debt?

For example on a flip: $60k all-in on purchase, rehab, and financing w/ ARV of $140k, the profits would be $80k but would be taxed at my personal income level

On a BRRRR: $60k all in w/ ARV of $140k and 80% LTV loan on the refi, the cash out would be $112k and profits would be $52k. Would this $52k be tax free since it is part of the refi debt?

Thanks!

[Dave Foster]

@Hunter Preston,  There is no profit or taxable gain recognized without a sale.  A refi of any kind is placing debt on equity.  You get the cash but it's not taxable.

But that sort of proves the point everyone is making.  Flipping involves purchasing with the primary intent of reselling as quickly as possible to access cash.  Accessing profit through a sale of a flip lands you in a world of tax hurt.

BRRR involves purchasing with the intent to hold. Accessing cash by a refi of a brrr does not create a taxable event.

Flipping is more work  Flipping is higher risk.  Flipping is lower return per investment.  Flipping is higher tax.  Flipping is also way more fun and a good source of your daily adrenaline fix. And done in a high enough volume or with just the right property it can be very profitable.

I'm lazy, I don't like risk.  I like my money to work for me not me working for my money. I can skydive or ski Mary Jane if I want adrenaline.  That's why I like buy and hold (most times).