When you’re flipping a house, it’s important to be aware of the taxes you’ll owe on the sale. Depending on state and local laws, a few different ways to avoid paying taxes on your profits.
Here are a few tips to help you keep more of your hard-earned money in your pocket!
Different ways to avoid paying taxes on a House flip
There are a few different ways to avoid paying taxes on your profits from flipping a house.
- Talk to your accountant. They will be able to advise you on the best way to structure your business in order to minimize your tax liability.
- Take advantage of the IRS’s “like-kind exchange” rules. This allows you to defer paying taxes on your profits by reinvesting them in another property.
- You can also avoid paying taxes by using the “cost-recovery” method, which allows you to deduct the cost of improvements made to the property from your profits.
- Another way to reduce your tax liability is to take advantage of special tax breaks that may be available for flipping houses. These can vary depending on your location, so it’s important to do some research and talk to a tax professional to see what might be available to you. For example, California offers a Homeowners’ Exemption which exempts the first $250,000 profit from taxation.
- Finally, remember that you can deduct any expenses you incurred while flipping the house from your taxes. This includes things like repairs, loan interest, and Realtor commissions. Be sure to keep good records of all your expenses so you can take advantage of this tax break!
Following these tips can minimize your tax liability and keep more of your hard-earned profits. Talk to your accountant and check your state’s laws to ensure you take advantage of all the tax breaks available to you.