Now here is a type of flipping I can get behind. You have a few rentals and don’t mind moving around. Residence flipping requires that you actually live in property as your personal residence for at least two years and then sell it for a profit – then move on to the next.
Unlike normal quick flipping for profit (or not), this is a strategy that can work very well – if you have the temperament for it. Most people won’t.
Here is how it works:
You buy a bad house in a nice neighborhood, live there for two years while fixing it up and then sell it and move on to another principal residence – then do it again. Of course this presupposes that you are able to improve the property well and frugally. Paying a contractor $100,000 to remodel the house and selling it for $100,000 more doesn’t work.
The tax gods look very favorably on this strategy. Gain on the sale of this type of transaction up $250,000 if single and $500,000 if married is not just deferred, it is completely tax free. No deferral. Put the money into your pocket, and tell the IRS to pound sand – you did it legally.
One problem inherent in all flipping is a declining market. Should your house be worth less than you hope, the flip won’t be very profitable. In this case however, you selected a nice neighborhood, you live there, so it isn’t a major concern – just don’t sell it yet.
Most people don’t want to move every two years. But if you own and live in a house for 2 of the last five years, you can exclude the gains as indicated above. If you have the temperament for it, you could pocket some nice change using this strategy – especially if you can do it without a Realtor absorbing a chunk of your profit.
The simple steps:
Live in for at least 2 years;
Sell house for tax free profit;