How To Select The Best Entity For Flipping Houses

Welcome to our last Tax Tuesday for 2023, where tax experts Eliot Thomas, Esq., Manager of Tax Advisors at Anderson, and returning guest Jeff Webb, CPA, CFO of Anderson Business Advisors share their expert advice on topics like crypto taxes, reimbursement for moving expenses if you’re in the military, and investing in real estate with your IRA. You’ll hear how to protect yourself when flipping houses, by creating the right kind of entity to hold those properties. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

• "How can training costs including travel be tax deductible? If we got some costs regarding starting up our corporation, maybe some education or something like that, can we deduct it? If so, how?" - training costs can be deductible in certain cases.
• "We've been engaged two years. I want to get married in July of 2024. I make $85,000 a year, and he makes $120,000 with W-2 jobs. I'm wanting to become a real estate professional next year and make income from my for-rentals. Am I able to keep more of his income if we file jointly after we're married? What type of strategy would help him keep more of his money?" - There’s a lot that can be done here - retirement plans, S-corp, hiring your spouse, etc.
• "Once the purchase of a property is finalized, should cost seg study process be started immediately after? And can you double dip the cost segregation process, meaning before and after upgrades/repairs?" - If I am not a real estate professional. If I do a cost seg, I might just be creating a giant passive loss that I can't use…
• "Does depreciation taken from a syndication have to be paid back when the property is sold?" - You will receive a K-1 from the partnership that is a syndication, and it will show your gain on the property. Yes, you’re going to have to recapture.
• "Are there advantages of investing in trading securities, stocks, bonds, commodities, futures, et cetera, in an entity account rather than in an individual account? Any kind of benefits, maybe setting up certain structures for that?" – There is, and it primarily comes from income shifting.
• "How do we do real estate investing if we have an IRA fund?" - You can invest, but you cannot be involved in any way in the running of that property
• "When are crypto earnings taxed?" - It depends on where the income is coming from.
• "As a member of the armed forces, are my travel expenses from overseas location back to my property location stateside tax deductible? If we're doing some traveling there, we're in the armed forces, what can we do as far as any deductions if possible?" - If you have overseas travel on a change station, make sure you're seeing an accountant to do your taxes that knows what the heck he's talking about and what you're doing.
• "Is it better to have a separate entity for flipping, such as an LLC or corporation, or should I report it as an individual?" - do not flip in your own name. There’s plenty that can go wrong…
• "I am a new real estate agent. Does the time I spend searching for a property in my local market, including travel time, and my family count towards the 750 hours needed to qualify for rep status, even if we end up not buying the property this year?" - first of all, we can't use travel time usually as far as rep status.
• "Is it possible, feasible, or legal to incorporate yourself and transfer all your assets to the new company while also deducting expenses used to support the new business, in other words, yourself?" - No, you can't make your personal expenses into business expenses. The real answer is just a flat-out no.

Resources:

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