Can you create a Corp to flip houses and reinvest the profit?

Question

YES Yes  I know ask an accountant

It’s Saturday I don’t want to wait until Monday 😀So could a corporation flip houses reinvesting profits into the next flip to temporarily avoid income tax instead of having to 1031?

Reason is I am on my way to flipping 2 properties per month.  I don’t want to habe to do so many 1031s

So could you set up a corporation buy a house, pay to have it fixed up, sell it, reinvest all the profits And so on?

Finally taking out the profits years down the road   Thereby having more money to buy more properties in the time being

If not are there any suggestions how you temporarily avoid taxes without doing 24 1031s a year?

Wayne Brooks · Answer

Not correct at all.....just like for an individual, money spent buying a property is not an expense. An S Corp gets taxed on profit, not just how much money is left in your checking account at the end of the year.

Josh C. · Answer

So much wrong here it’s just too much yo handle in one reply. As Wayne perfectly put it, you are taxed at net, not what’s in your checking account. If you spent all your money on other houses to flip and can’t pay the taxes, you can’t say you “reinvested” the profits. IRS isn’t your business partner. They want paid. Period. If you make a dollar they want a slice. Buying new houses aren’t business expenses you can write. You really do need to pay an accountant for their time. Would be helpful for you.

Also, two houses is a lot of a houses to flip in a month every month. I would think less than 1% of house flippers would do that volume.

Wayne Brooks · Answer

@Aria Azarli Purchase and rehab costs are Not expensed as they occur....your profit/loss/expenses  are calculated when you Sell. Profit is taxed as profit, it doesn’t matter you do with that profit.  The determination of what is profit and what are expenses don’t change whether you do it as an individual or an entity.

Taylor L. · Answer

Flips don't qualify for 1031s, so it's important to keep that in mind. Investors typically use LLCs because they provide pass through taxation, whereas a C-corp will get hit with double taxation.

As you said, talk with a CPA :)

Michael Plante · Answer

It’s not Saturday?

Dolly Marketakis · Answer

@Michael Plante

In a five year window you can claim losses 2 times without the IRS without any tax problems. If you do it more than that they might rule your business a hobby.

So be careful to not leave any profits behind in the LLC. It does not need to be a lot. But don’t let it end in a loss too many times. Just 2 times every 5-years. 😁

https://smallbusiness.chron.com/can-business-loss-taxes-30737.html

Aria Azarli · Answer

@Michael Plante talk to your cpa about this, but, look into opening an S Corp. an S Corp is taxed on what is left, not the capital gains. So theoretically you can reinvest your profits into other deals but still get taxed, just a very low amount.

Matt Groth · Answer

@Michael Plante the only way I know of to legally not pay taxes on a flip, is to sell at a loss..

Will Barnard · Answer

"YES Yes  I know ask an accountant

It’s Saturday I don’t want to wait until Monday 😀"

This is so funny! Rather than wait for your professional, you choose to get a ton of bad advice from non accountant educated people in this thread! I hope you don't need surgery on a weekend!

Joking aside, I have been flipping for 13 years and my accountant instructed me to flip from an S corp. This is not going to be the best advice for each and every investor in every state, however, generally speaking, it is the best entity to flip from. An LLC with S Corp tax election constitutes the same thing by the way.

S Corps and LLC's are "pass through" entities meaning the profits pass through to your personal return. There is no legal way to 1031 a flip as it is considered inventory. The only flips that qualify for 1031 that I know of is IF your initial intent was to hold long term, you did hold for at least 366 days, and you can show that your intent was to hold from the start but circumstances changed. If you are flipping 24 homes a year (or even 6), good luck showing/proving intent on that one.

Basit Siddiqi · Answer

You want to have a discussion with your CPA whether a C-Corp or an S-corp will be better.Most people think about C-corp and get attached to the 21% tax rate. However, what people fail to realize is that there is also a state income tax rate along with a potential second tax when there are dividends distributed to its shareholders/owners.

Can you create a Corp to flip houses and reinvest the profit?

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