The tax advantages of flipping houses make fix-and-flips unique among almost every single other real estate investment out there. Here are some great tax benefits you should be aware of:
Benefit #1 Tax deductible interest
If you’re using a loan program to purchase fix-and-flip properties, the interest you pay can be written off for tax purposes.
- For investment properties (fix-and-flips, rentals, etc.) you can deduct all the mortgage interest and property taxes. Your private lender will send you a Form 1098 with the amount of interest paid.
Benefit #2 House flipping expenditures
Fixing and flipping a house requires spending some capital in order to fix property up and resell it.
While you are taxed on any profits earned, nonetheless you can deduct all the expenses incurred that are related to buying, repairing, and renovating the property.
Benefit #3 You can easily maximize other deductions
IRS tax code allows you to deduct legitimate business expenses which in turn lower your taxable income. Luckily, there are many deductions available beyond real estate investment properties. For example, you can deduct:
- Part of your rent or mortgage payment for your home office
- Part of your home office utility bills, such as business phone and internet lines
- The cost of your home office supplies and equipment
- Business travel expenses: the mileage on your vehicle, plane travel, and lodging expenses – all of these are deductible only if directly related to business functions
- Business meals
- Any advertising you do as part of marketing the renovated property for sales
- REALTOR fees
- Education expenses – this means that you can deduct real estate investment courses
The key to maximize your deductions is keeping meticulous records of your expenses. You can do that by creating a separate, dedicated business checking account and credit card used solely for your real estate business. This way, you’ll avoid co-mingling funds with your personal expenses. In addition, this makes it so much easier for your bookkeeper to track and for your CPA to file taxes.
Benefit #4 The 1031 exchange
If you are not already aware, IRS Section 1031 allows investors to make a like-kind exchange in order to defer paying taxes. That means you can take profits from a flip, roll them to another flip, and defer paying any tax. Ask your tax advisor if this scenario makes sense for your situation!
Feeling ready and confident for your next flip? Contact CIVIC Financial Services today to be your partner in your real estate investment endeavors! Give us a call at 877-472-4842 and see how we can fund your next project.
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