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[ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] Re: LLC : Short Term Capital Gains Taxes, or Ordinary Income Posted by k2163@yahoo.com on August 16, 2003 at 8:39 AM In Reply to: LLC : Short Term Capital Gains Taxes, or Ordinary Income posted by Wayne on August 16, 2003 at 7:09 AM Acquiring property to flip it is ordinary income not capital gain. You will get a lot of flack on that statement from many people but do the research and you will find your intent to dispose of it quickly makes it business inventory. Most people report this as short term c/g. The rates are essentially the same unless you are netting. The related deductions can be different too . If you form a single member llc and you do not check the box to be a c-corp or an s-corp you are a disregarded entity for income tax so it's as if you don't have an entity for tax purposes and you hold the property yourself. Multi member llc's are partnerships unless you check the box to be a c or s corp. S-corp and partnership income is determined at the s-corp and patnerhsip level but the tax is reported and paid at the shareholder/partner level. If it would be ordinary income in the hands of the entity it would be ordinary income in the hands of the sharholder/partner as the use and intent would be the same. S-corps don't get basis for non-recourse debt at the entity level so they are not used very much with real estate. You could sell the stock of the s-corp to get c/g but who wants it in this situation? Ken : I have a question about taxes, if anyone can shed some light from personal experience and know-how. : Scenario: I form a company, LLC or S-Corp, capitalize it, and use this as a vehicle for property investments and property sales (rentals and flips primarily). I purchase a distressed property (eg. foreclosure), fix it, flip it. My net profit from the sale is $10,000.00 (for easier math), and I sold the property 3 months after I acquired it. : On the surface, this is a short term capital gains transaction, and as such the profits will be taxed at income rate for each partner in the LLC, or shareholder of the S-Corp. This could be a fairly steep 35%, or $3500.00. This is if I do not roll this profit back in to purchase another property. Does it matter? : My question is this. Under a corporate facade, S-Corp or LLC, is this profit realized as a short term capital gains, or is it realized as ordinary income to the company? : If it is short term capital gains, them I'm done, and I owe $3500.00 on that $10,000.00 profit, no matter what. : However, if this is classified as ordinary income to the company, then I take that profit and use it towards the purchase of my next flip. Now this money was put towards expenses, and thus it is no longer profit. : I continue along this line, always rolling all profits back into purchasing more inventory for the business. The goal here is to realize very little operating profit by year's end, except for the amounts we wish to take out as owner's profits, which of course are then taxed at ordinary income rate for each owner. : So, my question is, as an LLC or S-Corp, are profits from a short term sale (<1 yr) considered short term capital gains, or are they considered ordinary income? Follow Ups: Post a Followup: Name : E-Mail : Subject : Comments: : Acquiring property to flip it is ordinary income not capital gain. You will get a lot of flack on that statement from many people but do the research and you will find your intent to dispose of it quickly makes it business inventory. Most people report this as short term c/g. The rates are essentially the same unless you are netting. The related deductions can be different too . : If you form a single member llc and you do not check the box to be a c-corp or an s-corp you are a disregarded entity for income tax so it's as if you don't have an entity for tax purposes and you hold the property yourself. : Multi member llc's are partnerships unless you check the box to be a c or s corp. : S-corp and partnership income is determined at the s-corp and patnerhsip level : but the tax is reported and paid at the shareholder/partner level. If it would be ordinary income in the hands of the entity it would be ordinary income in the hands of the sharholder/partner as the use and intent would be the same. : S-corps don't get basis for non-recourse debt at the entity level so they are not used very much with real estate. : You could sell the stock of the s-corp to get c/g but who wants it in this situation? : Ken : : I have a question about taxes, if anyone can shed some light from personal experience and know-how. : : Scenario: I form a company, LLC or S-Corp, capitalize it, and use this as a vehicle for property investments and property sales (rentals and flips primarily). I purchase a distressed property (eg. foreclosure), fix it, flip it. My net profit from the sale is $10,000.00 (for easier math), and I sold the property 3 months after I acquired it. : : On the surface, this is a short term capital gains transaction, and as such the profits will be taxed at income rate for each partner in the LLC, or shareholder of the S-Corp. This could be a fairly steep 35%, or $3500.00. This is if I do not roll this profit back in to purchase another property. Does it matter? : : My question is this. Under a corporate facade, S-Corp or LLC, is this profit realized as a short term capital gains, or is it realized as ordinary income to the company? : : If it is short term capital gains, them I'm done, and I owe $3500.00 on that $10,000.00 profit, no matter what. : : However, if this is classified as ordinary income to the company, then I take that profit and use it towards the purchase of my next flip. Now this money was put towards expenses, and thus it is no longer profit. : : I continue along this line, always rolling all profits back into purchasing more inventory for the business. The goal here is to realize very little operating profit by year's end, except for the amounts we wish to take out as owner's profits, which of course are then taxed at ordinary income rate for each owner. : : So, my question is, as an LLC or S-Corp, are profits from a short term sale (<1 yr) considered short term capital gains, or are they considered ordinary income? Optional Link URL: Link Title: Optional Image URL: [ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] WWWAdmin 2.0a © 1997 Matt Wright and DBasics Software Company, All Rights Reserved

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