Is a live-in 2-year flip really a thing?

[Lam N.]

To understand where I'm coming from, read this other thread I started.

https://www.biggerpockets.com/forums/67/topics/445...

I did a google search for live-in 2-year flip, and the only things that show up are articles talking about buying a place, pay contractors to fix it up, put it on the market ASAP, and pray you at least break even.  There's really almost no one talking about live-in 2 year flip, which now that I've been thinking a lot more about makes more sense to me for those of us who don't have millions of dollars to invest in real estates.

Our strategy is this.  We would both have our full time jobs.  During the 2 years that we live in a house, we would slowly but surely fix it up with our own labor.  So, the only things that will cost us are material costs.  When 2 years are up, we put the updated house on the market.  Why 2 years?  To avoid capital gains tax.  I'm already paying 30% in taxes from my day job.  Any capital gains I get before the 2 years limit would surely also be 30%.

To me, this makes perfect sense.  We're not really risking anything.  There's no carrying cost involved.  Why?  Because we live there!  There's no risk of a flop.  Why?  Because if we can't get it for a profit, we can just stay there.  We would both still have our full time jobs to fall back to.  And 2 years is plenty of time to do almost everything ourselves.

What is wrong with this strategy?  How come pretty much no one on the internet is talking about this type of strategy?  How come everyone is busy talking about the way property brothers do it?

[Dave Foster]

@Lam N., the reason you're not finding much info on it is because you're mixing contemporary slang.  A "flip" is commonly know as a property  you purchase to fix and immediately sell (flip).  It is viewed as a quick process.

What you're talking about is application of the primary residence exclusion of sec 121 IRS code.  You can read about it in publication 523 from the IRS.  Since you must have lived in the property for 2 out of the 5 years immediately prior to sale it is not seen as a quick "flip" kind of thing.  But its been around for a long long time.  First it was a one time exemption but with a huge adjustment in 1987 you can now use the 121 exemption every two years.  Yes it's tax free up to $500K of profit if you're married.  and yes it's the greatest thing going if  you don't mind moving once in a while.

@Joel Cummings, This is superior to the 1031 because it's tax free instead of tax deferred.  Also, you cannot do 1031s on your primary residence so this is the tax mitigation strategy for your primary.  1031s are the tax mitigation strategy for investment property.  You cannot use the primary residence exclusion for a piece of investment property.