taxes due to selling a house you flip

[Michael Mastantuono]

I am constantly warned about tax penalties due to selling a house you flip. I created an LLC that I'm going to use to invest in and flip houses. I was under the impression that only the money taken out as a draw would be taxed at the highest rate and that the rest would be shielded as long as it is rolled over into the next deal. My plan was to use the proceeds from a flip to do two things. One to help fund the next flip and two as down payment on a small multi family. any guidance or suggestions would be appreciated. thanks.

[J Scott]

Quote from @Michael Mastantuono:

ok so why do so many people flip houses? I am the only member of the LLC and I have structured it to be a totally separate entity. However, yes once there is a profit then I would want to pay my self something. But the rest would be used to fund the next deal. Also, if I only currently have one primary residence then I could make the flip my secondary residence while it's being rehabbed? ...but even then i need to hold it for 2 years?

People flip houses because they like the big buckets of cash they can make, and rarely think about the tax implications.  And if they do think about the tax implications, they decide that it's worth it to generate the big buckets of cash.

You can pay yourself any time you want, and you can do whatever you want with the profits, but that doesn't change the fact that there is a taxable event at the time of sale.  So, I would suggest putting aside some of the profits for taxes, or even paying quarterly what you owe.

There is no tax exemption for a "secondary residence," so there's no benefit to holding a property for 2 years if you're not living in it as your primary residence.