There are many benefits of land flipping which made it both easier and more accessible as a real estate investment strategy.
One of the benefits of land flipping is using seller financing to sell land. You get passive cash flow for years to come and make your money back within the first month!
When it comes to taxes, however, you need to be careful. Depending on the number of deals you do, the IRS may tax you on the full profit of the deal. In this episode, I discuss a loophole in US tax law that will allow you to do many seller financing deals without paying a gigantic tax bill!
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This podcast was recorded as part of our Winning Wednesday live series. Every Wednesday at 10AM PST on the Land Profit Generator Real Estate Investing Facebook Group, I answer your questions and delve deep into real topics that affect land flipping business owners.
How The IRS Taxes Dealers (And Why You Need A Loophole)
If you do a seller financing deal, you get paid every month by the buyer of the property. This obviously means that you don’t get all the profits at once.
If the IRS classifies you as a dealer, then they tax you on the total profit you will receive for that property. Now, this might be fine if you’re doing a small number of deals. But when you scale this will become a huge problem.
In order to take full advantage of the benefits of land flipping, and massively scale your land business, you need to ensure that you know how to save on taxes.
You need to have money moving in and out of your company and you can’t afford to be slapped with a huge bill at the end of the year. This is especially true for deals that are close right before the end of the tax year. Imagine having to pay taxes on a property that you just got the down-payment for! Thankfully, my CPA has found the perfect loophole.
How To Save On Your Taxes By Using A Tax Loophole
Before I explain this, I need to stress: I am not a lawyer or a CPA. Double-check everything I say with your CPA.
We are interested in two sections in the US tax code, namely section 1237(a) and section 453(l)(ii). In layman’s terms, they say the following:
If you buy a piece of land and you don’t materially change it (so you don’t split it, develop it, add onto it, etc.), and you sell it to somebody else using seller financing, then you are exempt from dealer status. (Importantly, you should only be selling to individuals and not a large corporate entity.)
This describes our business perfectly! This is exactly how we teach people how to flip land. So, I urge you to speak to your CPA and ensure that you save on your taxes by utilizing this amazing loophole.
- Find out about dealer status and how to get around it
- Learn how to take advantage of the benefits of land flipping from a tax perspective
- Understand the tax loophole that will save you money