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I operated a business that generates substantial income. I would like to invest some of this money by buying various, undervalued properties in my area, doing slight improvements to them, and reselling them at a future date through a separate, pass-through LLC.

If I do this, can I claim the property purchases as a business expense for that LLC and only pay taxes on the net profit? I am not looking to move into these homes or purchase them through my own name, only through that of the LLC.

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A property/house is not considered an expense, it's an asset, so you don't deduct the purchase price. The expenses that you deduct would be the cost to upgrade/repair, interest (if financing), cost to buy/sell (realtor fees), depreciation, etc. You are taxed on your net profit from the sale. When you buy and sell within the same tax year this distinction has no impact, however when you carry a property across multiple tax years, your capital outlay in the year you buy the property does not offset taxable income (except for the expenses associated with the asset).

The LLC aspect is irrelevant here.

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No, there are a lot of fun things an entity into real estate can do though.

You can elect the new entity to be a real estate professional, and for the most part it turns all real estate activities into ordinary income, and also creates circumstances that can be deducted as net operating losses.

Also the entity may still be able to deduct interest payments on mortgages or borrowings, at a infinitely higher limit than an individual can.

Just some ideas, you'll have to check with the latest regulations as long held truths have changed with the 2018 tax code.

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As far as the IRS is concerned, "profit" is not how much you sell an asset for, it's how much you sell the asset above the basis price. If you buy a stock for $100, and sell it for $101, you're taxed on the $1, not the $101. "Expense" isn't quite the right word for the purchase price, but it is, for many purposes, the same thing. The primary factor in the basis is how much you paid for it, but other amounts factor into it. If you claim depreciation, that is subtracted from the basis. The costs of improvements can generally be added to the basis.

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Let's say the first LLC buys a flat for $100,000, spends $20,000 for improvements, and then the second LLC sells it for $150,000. Then there's the middle step where the first LLC sells the house for $120,000 to the second LLC.

So: LLC1 spends $100,000 an a flat, which is assumed worth $100,000. No loss/profit. LLC1 spends $20,000 on improvements, increasing the value of its asset to $120,000. No loss/profit. LLC1 sells to LLC2 for $120,000. No loss/profit for either company. LLC2 sells the flat for $150,000. That's $30,000 profit.

Anyway, you won't get around paying taxes doing that kind of thing.

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