How do LLC taxes work when flipping homes for capital gains?
I've started flipping houses and recently set up an LLC for this business. Now I'm confused about how taxes work in this scenario. If I buy a property through my LLC for $250,000, renovate it, and then sell it for $375,000, how does the profit get taxed? Would I be subject to the regular capital gains tax rates, or is this considered regular business income, or maybe something completely different? This is my first year doing house flips through an LLC structure so I'm trying to understand the tax implications before I file for 2025. Thanks for any advice!
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Sofia Gutierrez
The key thing to understand is that when you're flipping homes through an LLC, the IRS typically views this as an active business operation rather than an investment activity. Since you're buying properties with the specific intent to renovate and sell them quickly for profit, the gains are usually considered ordinary income, not capital gains. Your LLC is likely a pass-through entity for tax purposes (unless you've elected to be taxed as a corporation), which means the profits flow through to your personal tax return. You'll need to report this income on Schedule C of your personal tax return, and it will be subject to both income tax at your regular rate AND self-employment tax (about 15.3%).
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Dmitry Petrov
•So would it make more sense tax-wise to hold the properties longer to qualify for capital gains rates? Like if I held them for over a year before selling?
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Sofia Gutierrez
•If you held properties for longer periods with the intent to benefit from appreciation rather than from a quick flip, you might potentially qualify for capital gains treatment. Holding for more than a year would meet the long-term capital gains requirement. However, the IRS looks at your intent and pattern of activity. If you're regularly buying, renovating and selling properties as your business, they'll likely still consider you a "dealer" in real estate regardless of holding period, making the profits ordinary income. The distinction comes down to whether you're primarily in the business of flipping versus making occasional investment purchases.
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StarSurfer
I was in the exact same situation as you last year and totally confused about how my LLC house flipping business would be taxed. After getting contradicting advice from friends, I decided to use https://taxr.ai to analyze my situation. You upload your docs and their AI system gives you personalized tax guidance based on your specific situation. It confirmed I needed to report my flipping income as business income on Schedule C, not capital gains, and showed me which expenses were deductible for my renovation costs.
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Ava Martinez
•Does taxr.ai handle the special cases where you live in the property while renovating? I'm doing a flip but also living in the home as my primary residence for the first 9 months.
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Miguel Castro
•I've been burned by tax software before that didn't understand the LLC nuances. Does this actually work for more complex situations like self-directed IRAs purchasing real estate through an LLC? My tax situation is way more complicated than typical flippers.
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StarSurfer
•Yes, the system specifically asked me about personal use of the property and adjusted the guidance accordingly. It splits the expenses between personal and business use which was super helpful for my situation where I lived in one of my flips for a few months. For complex situations including self-directed IRAs and LLCs, that's actually where it shines the most. It analyzes multiple entity relationships and gives you the proper treatment based on IRS regulations. It caught several deductions my previous accountant missed related to my multi-entity structure.
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Miguel Castro
Just wanted to follow up - I tried taxr.ai after my skeptical question and I'm legitimately impressed. It correctly identified that my self-directed IRA's real estate activities through the LLC weren't subject to UBIT in my specific case (something my last accountant got wrong). It also clarified that my specific flipping activity pattern would be considered dealer property, not capital investment. The AI actually cited the relevant tax court cases that applied to my situation. Huge relief to finally understand my tax situation clearly!
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Zainab Abdulrahman
If you're serious about flipping houses through an LLC, you'll eventually need to deal with the IRS directly for something - I guarantee it. I wasted DAYS trying to get through to someone at the IRS about my LLC's EIN issue and kept getting disconnected. Finally found https://claimyr.com which got me connected to an actual IRS agent in under 45 minutes. Check out how it works here: https://youtu.be/_kiP6q8DX5c - it saved me from missing a critical filing deadline for my real estate business. They basically wait on hold with the IRS for you and call you when an agent picks up.
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Connor Byrne
•Wait, how exactly does this work? Do they have some special connection to the IRS or something? I've been trying to reach someone about my LLC's tax ID for weeks.
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Yara Elias
•Sounds like a scam. There's no way to "skip the line" with the IRS. You just have to keep calling until you get through like everyone else. I bet they just keep you on hold the same amount of time and charge you for it.
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Zainab Abdulrahman
•They don't have any special connection to the IRS - they use a sophisticated system that waits on hold for you. When an IRS agent finally picks up, they connect the call to your phone. It's basically like having someone else sit on hold instead of you. No, it's definitely not a scam. They don't promise to skip any lines - they just handle the hold time for you. Instead of you sitting there listening to the hold music for hours, their system does it, then alerts you when a human agent actually answers. Saved me from having to redial constantly after disconnects too, which was happening to me almost daily.
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Yara Elias
Ok I need to admit I was completely wrong about Claimyr. After dismissing it as a scam, I was desperate after my 9th disconnection with the IRS about my LLC's tax payment issue. I tried the service and they actually got me connected to an IRS representative in about 35 minutes. The agent resolved my issue about how my house flipping profits should be reported and confirmed it should be on Schedule C as business income. Literally saved me thousands in potential penalties. Sometimes being skeptical costs more than being open to solutions!
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QuantumQuasar
Another thing to consider with your LLC house flipping: you need to keep meticulously detailed records of all renovation expenses to maximize your deductions against that ordinary income. Track everything - materials, labor, permits, even mileage driving to Home Depot. I learned this the hard way and missed out on thousands in deductions my first year.
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Keisha Jackson
•Do you use any specific apps or systems to track all those expenses? I'm terrible at keeping receipts organized.
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QuantumQuasar
•I use a combination of QuickBooks for the accounting side and a separate app called Everlance that automatically tracks my mileage when I drive to properties or supply stores. The most important thing is creating a system where you immediately capture expenses rather than trying to reconstruct them later. Also take before and after photos of everything you renovate. These help document the work performed if you're ever questioned about your expenses. I keep a digital folder for each property with all receipts, invoices, and photos organized chronologically.
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Paolo Moretti
Has anyone dealt with how state taxes work for an LLC flipping homes across different states? My LLC is registered in Florida but I'm flipping properties in Georgia and Tennessee. Getting conflicting info about where I need to file.
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Amina Diop
•You'll need to file in each state where you're doing business, which in your case means all three states. This is called "foreign qualification" for your LLC in Georgia and Tennessee, and you'll file returns in each state for the income earned there.
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Yuki Ito
One important consideration that hasn't been mentioned yet is estimated quarterly tax payments. Since your LLC house flipping income is treated as business income subject to self-employment tax, you'll likely need to make quarterly estimated payments to avoid underpayment penalties. The IRS expects you to pay as you earn, not just at year-end. Calculate 25% of your expected annual profit and make payments by the quarterly deadlines (January 15, April 15, June 15, and September 15). Also consider setting aside about 30-35% of each flip's profit for taxes - this covers both income tax and the 15.3% self-employment tax. Many new flippers get caught off guard by the tax bill because they don't save enough from each sale. You might also want to look into whether your LLC should elect S-Corp status once you're doing multiple flips per year, as it can potentially save you money on self-employment taxes, though it adds payroll complexity.
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Seraphina Delan
•This is really helpful advice about quarterly payments! I'm just getting started with my first flip and hadn't even thought about estimated taxes. Quick question - when you say calculate 25% of expected annual profit, is that based on the gross profit from each flip or after deducting all the renovation expenses? I'm trying to figure out if I should be setting aside money from my $125k gross profit or from whatever's left after I subtract my $75k in renovation costs.
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