1st Time Flipper
I was wondering. To be an owner/occupier is the following a sound or advisable strategy:
1 . Buy a fixer-upper and pay cash for it.
2, Move into it and claim as a homestead for the year that you work on it.
3. Rent the home you moved out of to a relative for the year while you are doing renovations to a fixer-upper.
4. Sell the fixer-upper after holding it 1+ years ( Paying capital gains at 0-20%) OR live in it for 2 years then sell paying NO capital gains.
5. Kick relative out of house #1 and move back.
This is in the state of Florida. It’s my son’s house. He already bought and paid cash for it. It currently has renters in it and he would need them to move out to completely gut it and do the renovations.
He owns 7 other rental houses but has never “flipped” one per se.
There are a few problems with this strategy. For one thing, in Florida as in most states I believe there is more required to establishing a homestead than simply living in a house for a year. (I believe these requirements are particularly strict in Florida, where lots of people want to establish homesteads for tax purposes.) You may also encounter problems “kicking out” a tenant if they have a valid lease.
On the whole, your strategy isn’t necessarily a bad one (for your son to rent out one of his houses while working on another, then fixing up and selling the rented house once his tenants move out). However, some of the details (establishing a homestead, tax rates, etc.) would need to be confirmed with an accountant based on your son’s particular circumstances. In any event, I don’t think he’ll be able to sell any renovated property with no capital gains tax whatsoever unless he has established the house as his primary residence for several years – and even then his tax exclusion will be capped.
Hope this helps,