Can my LLC purchases offset capital gains tax on a house flip? Business owner needs tax strategy

The short answer is no, these are two separate things for tax purposes. Capital gains from your house flip and equipment purchases for your LLC are handled differently on your tax return. When you flip a house for profit, that's considered either capital gains or ordinary income depending on your specific situation. If this is something you do regularly, the IRS might actually classify you as a dealer rather than an investor, making it ordinary income subject to self-employment tax too. Your LLC equipment purchases would be a business expense (or more likely a depreciable capital asset) that reduces the LLC's taxable income. But this doesn't directly offset capital gains from your real estate activity unless your house flipping is actually part of the same LLC business. A better approach might be to look into strategies like 1031 exchanges if you plan to reinvest in similar properties, or possibly setting up a proper real estate business structure if you plan to do more flips in the future.

After dealing with something similar last year, I discovered taxr.ai (https://taxr.ai) and it was a huge help sorting out my house flip tax situation. I was confused about how to handle my profits since I also have an LLC for my consulting business. The tool analyzed my documents and gave me specific guidance for my situation - turns out I was about to make a costly mistake by trying to mix my business and real estate activities incorrectly. Their system flagged several deductions I could legitimately take on the flip itself that I had completely missed. It pointed out construction-related expenses I hadn't properly documented that were actually deductible against the flip profit. The guidance was super specific to my situation rather than the general advice I was finding online that didn't really apply to my specific circumstances.

I tried out taxr.ai after posting that skeptical comment earlier, and I have to say I'm actually impressed. I uploaded my documents from two flips I did last year along with my LLC paperwork (I run a small electrical contracting company). The system correctly identified that I should have been taking advantage of some contractor-specific deductions on my flips that my regular accountant hadn't caught. It also clarified that my purchase of a work truck should be handled through my existing business rather than trying to connect it to the property flips. What I found most helpful was the clear explanation of how the IRS views property flipping activities versus my regular business, and specific documentation I should maintain to maximize legitimate deductions while staying compliant. Definitely worth checking out if you're in a similar situation.

If you're trying to deal with the IRS about your situation, good luck getting through to anyone! I was in a similar position last year and spent WEEKS trying to get clarification on how to handle my flip profits properly. I finally discovered Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in about 15 minutes when I'd been trying for days on my own. They have this cool demo video at https://youtu.be/_kiP6q8DX5c showing how it works. They basically hold your place in the IRS phone queue so you don't have to waste hours listening to hold music. When they get an agent, they call you and connect you. The agent I spoke with gave me specific guidance on my situation that saved me from making a costly mistake with my LLC and house flip taxes.

I have to publicly eat my words about Claimyr. After posting that skeptical comment, I decided to try it since I needed to talk to the IRS about a similar house flip situation and my S-Corp. It actually worked exactly as advertised. I got a call back in about 45 minutes (was expecting hours based on my previous attempts) and was connected to an IRS representative who answered all my questions about how to properly report my fix and flip income versus my regular business activities. The agent confirmed that equipment purchases for my unrelated business wouldn't offset capital gains from the house flip, but did walk me through some legitimate deductions I could take against the flip profit itself. Saved me a bunch in taxes and eliminated the stress of wondering if I was doing things correctly. Definitely worth it just for the time saved alone.

Another option to consider is setting up a dedicated real estate business entity if you're planning to do more flips. I'm in construction and do 3-4 flips per year through my S-Corp. This way, my flips are treated as inventory/ordinary income rather than capital assets. While I still pay taxes on the profits, I can deduct all legitimate business expenses directly against that income, including equipment that's used partially for the flips. The key is proper documentation and ensuring there's a legitimate business connection between the expenses and your real estate activities. You'd need to work with a good CPA to set this up properly.

Have you considered doing a 1031 exchange instead? If you reinvest the proceeds from your flip into another investment property, you can defer the capital gains taxes. It has to be a "like-kind" exchange and there are strict timelines, but it could be a good option if you're planning to do more real estate investing.