Capital Gains Tax - Posted by Dave T
Posted by Dave T on May 16, 2000 at 17:28:33:
When you purchase real estate with the intent of reselling at a profit (such as via a flip), your real estate is considered business inventory. Business inventory is not eligible for IRC 1031 tax treatment, and at the moment, all your profit is taxed in the year of sale. There is no capital gains tax treatment for your flip transaction, regardless of your holding period. All your profit is ordinary income and taxed at your marginal tax rate. So, to keep avoiding capital gains taxes, keep flipping properties.
I suspect that your real question is how to avoid/defer taxes on the profits from your “flip”. The only way of which I am aware is to do your flips in your Roth IRA. As I understand it, as long as your profits stay in your IRA, there is no income tax due.
If you want to take cash away from the deal and put it in your pocket, then you should look at techniques for minimizing your tax bite. If you are in the 28%+ tax bracket, then doing your flips inside a C-Corporation will at least lower your tax rate to 15% on the first $50K of taxable corporate income.
Whenever you get to the point where you are ready to acquire investment real estate, then a wide array of tax avoidance/deferral strategies are available to shelter your sale profits.