<p>NO, when you buy and flip houses, IRS will view your house as inventory, not an investment, thus, all gains are ordinary income, regardless how long is the holding period. 1031 exchange is not allowed either.</p>
<p>Except if you buy and sell under the IRA/401K umbrella, in that, no matter whether it is gain or loss, it is not recognized. I had the fortune to amass enough equity to flip houses in a special 401K account that does allow purchase of real estate. Of course, when you buy real estate in 401K, the number one rule is that you or your related family member cannot occupy the house.</p>
<p>“Long term capital gains is 20% tax rate, no?”</p>
<p>I guess flipping a house would be considered a capital gain, and not income, then? Though in order to be long term, sounds like you would have to hold it for over a year. Then at worst you’d pay 20%, plus possibly the new medicare tax of 3.8%, plus whatever your state rate is. Not as bad as I thought, but if someone was going to fix up and flip, they wouldn’t get the preferential long term gains rate, and that could hurt.</p>
<p>BTW, when I say “regardless of holding period” that is if once you have attained a dealer status, the inventory holding period became immaterial. So, lets say you bought 5 houses and turned over 4 within 6 mo, but one is not sold for 2 years, when that house is sold, you will pay ordinary income tax.</p>
<p>When you “House Flipping” as defined in those tv shows, you’d better to report gains as ordinary income or an IRS audit is coming for sure. Buying and selling a house is going through escrow and there is nothing you can hide during an IRS audit.</p>
<p>Since I do my real estate transactions as a business I pay regular income taxes. Because I once experienced a crazy stalker (a whole other story) I have incorporated as an S Corp and net profit gets passed to personal income tax through a K1 even though I am a single member LLC. This is the way most flippers do their business. If you do more than one (I could be wrong about exact number) it cannot be considered capital gains.</p>
The foundation needs to be deeper than the frost line. There is no frost line in most areas of CA, so there is no need for a deep foundation / basement. For similar reasons, basements are extremely rare in areas of the south that do not get low temperatures.</p>
<p>Not sure frost line is the only reason why a house without a basement. Been to the homes without a basement in Tahoe which is cold enough in winter.</p>
<p>U can buy and sell more than one house and not paying ordinary income tax. It all depends on the intent. I have clients who own 25 or more homes but they rent them out for several years before they sell. That is considered capital gains, incorporate or not is immaterial.</p>
<p>There are basements in California, including southern California, but they aren’t all that common.
My grandfather’s house had a basement built in the 30’s. It was in what was then a rural community that is now a central suburb of LA. People who had migrated out from the midwest were used to cellars, and put them in their houses in California. However, they were hot and had flooding problems. Most people filled them in and they weren’t built into houses in the 50s and 60s. </p>
<p>Then came the boom of the 80s and 90s. Some of the more exclusive neighborhoods put a limit on house footprint, and the way around that was building down. So you will find basements occasionally in the more prosperous flat neighborhoods. I know there were 5 basements on new houses built on my street alone. </p>
<p>In hillside neighborhoods, like canyon country around the San Fernando Valley, or the hills on the San Francisco peninsula, walk out basements are fairly common.</p>
<p>As for the warm southern states, I just moved to the Carolina border, and again, in hillside neighborhoods I saw a ton of walkout basements. In fact, my home now has a basement.</p>
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<li>shrug * If people choose to engage in prohibited transactions and play the audit lottery, that’s their choice. But that’s not the same choice as engaging in prohibited transactions without realizing that they’re prohibited.</li>
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