After finishing rehab for a flip, what do you do next?

[Allen L.]

Hi all,

What do you do after you finish rehab on a property that you intend on selling? I see a few options and want to hear what you do and whether you have any other good options. The point I want is to reduce taxes, because flipping houses doesn't make sense any more on higher marginal tax rates and end up being a waste of energy and focus in my opinion.

1. Sell right away - higher taxes

2. Rent for a year, then sell

3. Lease to own, with the option to sell after 1 year

4. Rent for a year, then do a 1031 exchange

And for those that decide to rent it out for a year, do you refi right away to get money out so you have cash to deploy to another project, or do you think that's too much of a waste on fees since you'll get your money out within like 10 months anyways?

[J Scott]

Under each of those scenarios, the taxes are the same. When you buy house that you intend to renovate and resell, you will pay ordinary income taxes at your marginal rate, regardless of how long you hold it or whether you rent it before selling it.

And a flip doesn't qualify for 1031 exchange, so that's not an option either.

All that matters to the IRS is your original intention for your exit strategy.