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    14 Replies Latest reply on May 7, 2008 5:06 PM by designer

    Flipping Houses?

    verse2101 Wayfarer
      Is it Illegal? If so in what way?
        • Re: Flipping Houses?
          LUCKIEST Guide
          IS "WHAT" ILLEGAL?????
          • Re: Flipping Houses?
            England Wayfarer
            I guess my question is if it is an investment property how many houses can you flip per year? Also what are the tax benefits of flipping a house and not living in it? Also,if you are a first time home buyer can you purchase a home and have someone else live in it?

            Just Curious
              • Re: Flipping Houses?
                England Wayfarer

                Is there going to be an edit button to this forum in the future. I keep wanting to edit my message or add onto it after I have pressed the enter key.

                • Re: Flipping Houses?
                  brownsugar56 Wayfarer
                  I am with the john beck system that buy houses at auction and they can be sold as soon as the title is clears from what i have learn each state has a certain amount of time for you to use certain houses as rental property, but if you buy a house strait out from someone to can do as you please as soon as you please i am taking real estate classes now these are very good question
                  • Re: Flipping Houses?
                    AppleGraphics Adventurer
                    > {quote:title=England wrote:}{quote}
                    > I guess my question is if it is an investment property how many houses can you flip per year? Also what are the tax benefits of flipping a house and not living in it? Also,if you are a first time home buyer can you purchase a home and have someone else live in it?
                    > Just Curious

                    To start as others have already stated flipping houses is perfectly legal as long as you officially own and in possession of the title (this can take some time depending on the circumstances of the purchase). That being said England brings up a good question about the tax benefits of flipping a house compared to buying one to live in. As many people know you are typically allowed to right off the interest paid to a mortgage as well as the taxes paid on property owned. This is actually only true if the house is being used as your main residence. Rental properties are given some leeway if you live in them for at least 3 months out of the year, but when you flip a house you are not able to take advantage of the normal tax incentives offered in real estate. On top of that if you own the property for less then 2 years (this may vary between states) you have to pay capital gain taxes on any profit made from the sale.

                    To answer your other questions, you can flip as many houses as you can afford to per year (there is no limit except you pocket book), and there is no reason a first time home buyer could not rent out their purchase (though the tax advantages mentioned above may deter this).

                    I hope this helps.
                      • Re: Flipping Houses?
                        England Wayfarer
                        Thanks AppleGraphics for the input. It did help me and I look forward to becoming a flipper.
                        • Re: Flipping Houses?
                          dublincpa Scout

                          A couple things about the tax aspect of rentals and flip houses:

                          Flipping houses quickly becomes a business subject to ordinary income and self employment taxes. The IRS applies a facts and circumstances test, but suffice it to say if you are doing more than one per year it is probably a business not an investment. Investors usually hold things for appreciate and don't significantly alter their value by any means but the passage of time. You end up with the same treatment as a developer who converts an apartment building to condos. The houses become inventory. As such, you aren't permitted to depreciate them even if you rent them while trying to sell them. While the house is worked on you cannot deduct anything if it is unoccupied. The carrying costs get capitalized, which means you add them to the cost of the house in determining your profit at the end.

                          During any period the houses are rented, you are permitted all deductions associated with the property except depreciation. That means mortgage interest, real estate taxes, insurance, utilities, maintenance, management etc.

                          Living in a rental property for more than two weeks (or 10% of days rented per year) actually hurts your tax deductions.

                          Your income level and the relative time spent and money earned among non real estate activities are truly what drive the immediate tax benefits of real estate rentals. Most real estate tax benefits are an acceleration of deductions and consequently a deferral of taxes. If you have a vacation home that can meet the occupancy test above, you pickup some minor tax benefits. If you have multiple vacation homes and can qualify them as rentals, your tax benefits are a bit more.

                          In order to avoid capital gains tax on the first $250K or( $500K if married filing jointly), you have to live in a property for two of the last five years you own it unless you meet one of a bunch of exceptions that aren't really relevant to our discussion. However, if you rent the property out and depreciate it, you will pay tax on the depreciation taken after 5/5/97. So if you bought a property 10 or 20 years ago and rented it out ever since, you could validly move in for two years and only pay tax on the deprecation that you took in the last 11 years, but not the likely substantial capital gain that you would otherwise have. With some planning, a 1031 exchange can get you a property more to your residential tastes a few years before you move in.

                          As far as I am aware, all states that have individual income taxes recognize the federal exclusions.

                          It might be beneficial to set up two LLCs for real estate if you intend to rent any properties, one to do flipping and possibly management of the rentals and one to own the rental properties. If a property that you expected to flip becomes a rental, your lender would likely be ok with a transfer of the deed if the rental LLC and flipping LLC have the same ownership. Other options include one LLC for each property and Series LLCs if your state permits.
                      • Re: Flipping Houses?
                        brownsugar56 Wayfarer
                        flipping houses is not illegal at all because you can buy foreclosuree for pennies on a dollar and turn around and sell it at market value, also there is all sought of programs out there to help you buy and sell houses and by the way there is also a show on tv that showed you how to be successful in real-estate
                        • Re: Flipping Houses?
                          MasterRealtor Newbie
                          Flipping houses is perfectly legal. I would approach it carefully in this market.

                          Good luck and let me know if you have any questions. I am MasterRealtor.
                          • Re: Flipping Houses?
                            designer Tracker
                            I would never buy something with the intent from the get-go to flip. But, I do love the hit BRAVO show...."Flipping Out"!