2 LLC's construction and flip to lower taxes?

[Mark Roberts]

Okay guys.. so in short, we sold our family businesses and now I have a great opportunity to get into house flipping full time. We currently own 2 properties in our personal names and one is almost done. So we want to move forward professionally. So to my knowledge you have "ordinary income" (flipping a house in under a year), and capital gains tax (owning the property for more than a year). 1st off, is this idea legal, and would it even help on lowering taxes. I had the idea to form 2 LLC's. 1 for flipping the houses, the 2nd for a construction company. I do a lot of the work myself, and will use some subs. The idea would be for the flip LLC to purchase the property. The construction company to bill the flip LLC for labor, materials (marked up over the price I would pay, say Lowe's prices), sublet labor (also marked up). The construction company would make a majority of the profit, which would raise the expenses of the house flipping LLC, hence lowering taxes. I am not sure if this is legal, or even makes sense. Would the construction company's taxes be the same as the house flipping LLC's in an ordinary income scenario? If so, my idea is basically nothing lol.

[Christopher Smith]

First time "per se" is not the determining factor distinguishing a trade or business activity from an investment activity, it's intent. Based upon the above as best I can ferret out your intent, it sounds as if you have two active businesses, that would be both taxed as such (i.e., neither is truly holding the properties as investments).