answer from Bobby REedwine( CPA & SUPER Investor)
If you are a buy and sell guy, the tax code is not very friendly to you. The following will happen to flippers:
1. All gain is taxable in the year of sale.
2. No installment gains are allowed.
3. If you are in a state that pays income tax, don’t forget to add that in.
4. And the worse part…you get to pay 15.3% FICA & self employment tax !!! It is possible that your tax rate will approach 50%.
The only reason I would do buy and flip, is if I thought the prices were going to be lower in 12 months than today. 1/2 of a dollar is still worth more than 0.
Also remember, that when they put down 5,000, that is nothing more than a big deposit. You might do a rent with an option for the beneficial interest after 1 or 2 years. Now you would show rental income. The sale would be reported a few years in the future IF THEY ARE STILL THERE. In our state this is probably not legal, but where you live this may be possible.
If you have some other rentals, consider selling them on installment. Investment property qualifies for installment sales. Then, the buy/sell houses, you would end up holding for at least 1 year. Then, you could probably sell them and get the tax benefits mentioned above.