how do you make no profit on flips/rehabs?
I think we have expensed out all the repairs and materials we put in. Now what? What can I do to lower taxes?
If I set up Roth IRA, I can’t touch the money till I am 70 years old…
There is no 1031 on flips…
how do you deal with that?
may be you could recommend any books…
Short of an IRA, the only way to reduce taxable income on profitable flips is to generate more taxable deductions, which normally involves spending on business items such as computers, insurance, office equipment, retirement accounts, convention trips, etc. The problem is that at some point, you’ve spent on pretty much everything that it makes sense to spend on. For example, you can always buy another deductible computer - but what the heck are you going to do with more computers than you or your employees need?
John Hyre
exactly…
thanks for the reply, I appreciate it.
so looks like the only way to do it is 1031 Exchange, IRA, and deductions…
does anybody have any more ideas?
You have already isolated your issues. Property flips are not eligible for 1031 treatment, investing from within your IRA locks up your profits until you reach age 59.5, and taking reasonable expense deductions really means that you have spent the money.
What’s wrong with paying taxes on your profits? If you have already maximized your allowable deductions and if you have taken all legal measures to minimize your tax liability, having taxable income left over just means you did well. If you have $30K in taxable profits and the IRS takes half, you still have $15K left over to reinvest in your next profitable deal, again and again. Keep repeating until you have more money than you know what to do with.
As you get more successful, you will probably want to add long term rental holdings to your investment strategy. Long term rental income is passive income that, while taxable as ordinary income, is not subject to self-employment income taxes. Depreciation is a cost-free expense that shelters some of your rental income. Additionally, you have an opportunity to use a passive loss allowance to offset up to $25K of other ordinary income from taxes. If, instead, you have net passive rental income, you might want to invest in low income housing limited partnerships that give tax credits you can apply to your tax liability (dollar for dollar).
Greater success in this business just opens more doors to shelter your income.
thank you for the reply.
That is what I thought.
You know, sometimes people say with intriguing smile that they know how to minimize taxes. So, I thought what would they knew that I did not know yet…
yelena,
Money in an IRA can be withdrawn at any age if it is a substanially equal distribution over your life expectancy.
If it is a Roth the profit has to stay there 5 years.
If you have the philosophy that you do enough deals in your name for the money you need to live on then pay the taxes. If you want to create wealth do the rest of the deals in the Roth.
Have some existing property, do a L/O and then 1031 the profit in a year or two.
Don’t spead this around but if someone loaned me some money from their IRA on one of my properties I would be inclined to loan them money on a rehab or most anything if it were non-recourse.
thank you, Bud 