Contractor Rehabbing Properties...tax Issues?
I am a small residential remodeling contractor in Ohio. I am looking to start buying properties to rehab and then sell and/or rent. My question is regarding taxes. What benefits can I get? My remodeling business is a LLC. I would start another LLC to buy the properties with. How can I get the most bang for my buck out of this relationship. Can I buy the materials through my contracting business and then "pay myself" to do the improvements, thus reducing some capital gains issues? I am a newbie and any advice, comments, suggestions, or war stories would be greatly appreciated!!
If you do these as rent to owns and hold the properties for > 1 year, you can get long term capital gains treatment as opposed to ordinary income treatment which is what you currently face. You can also do like kind exchanges to defer the taxes on places you rent to others.
If you deduct the expense of your contracting services from the profits for your realestate company, you have to claim the money you pay your remodeling company as income. Sounds like a wash to me.