Starting a mobile home flipping business

mobile home university
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I currently live in Illinois and have been flipping mobile homes in Florida. I will be starting a corporation for this endeavor, and have a few questions regarding the best process/practices to do so (without being a Florida resident).

1). For tax purposes, would all income from this business be considered capital gains?

  • if so, does incorporating in Florida vs Illinois benefit us?

2). Any suggestions on which type of corporation would best apply to this business model?

3). Any other insights I might be missing?

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I think you would be better suited asking these questions to tax accountants and attorneys.

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I agree with JD. The answers to these questions vary based on your personal circumstances, timing, etc.

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@Valentinep

  1. For tax purposes the income will be Ordinary Income unless it takes you more than 1 year to flip the home. Most CPAs will treat the homes you buy as an Inventory Asset as opposed to a fixed asset.

  2. You will need to do form an S-Corp and get your Florida MH Dealers license.
    https://www.flhsmv.gov/motor-vehicles-tags-titles/dealers-installers-manufacturers-distributors-importers/mv-rv-mh-dealer-broker-licenses/

Also, check with Florida laws if a contractor’s license is required. Many states have laws on the books which do not allow non-licensed contractors to do construction on a home if the intent is to sell the home for a profit.

**edit
You do not need to have an S-Corp. You can also be a sole Proprietor. I only said S-Corp because you asked which type of Corp you should use. An S-Corp is a pass-through entity. The S-Corp will throw off a K-1 which you will use for your personal tax returns.

I did not suggest an LLC as most states will not allow an LLC to hold a professional license.

I did not recommend a C-Corp as you will be Double taxed with a C-Corp.

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What benefit do you believe incorporating will give you? Taxes? Corporations have to pay taxes and then you personally have to pay taxes on top of that. Are you worried about being sued? Come on, you are just buying and selling houses. Unless you are doing some really shady things it is hard to see much risk unless it is some petty thing like a leaky window or something. So stand behind your word and fix it. So get insurance in the remote chance of something bigger happens. Being incorporated does not stop law suits. They may even attract them. And on top of that they are expensive, and don’t produce income. If the law requires it like SDGuy says in Florida, well, you have no choice, but otherwise do some independent research and I think you will find it really does not have much benefit for what you are doing.

Look, if you are in business you should educate yourself as to the basics so you don’t have to go running to a professional over stuff like this. Lawyers and Accountants have intimated a lot of people out there into believing people are fools if they do anything with out first getting their professional approval like it is some kind of priesthood. Its not. In most cases they bring very little value add but they are skilled at making their clients believe they can not learn and figure thing out for themselves. I am not saying there is not place for attorneys and CPA but not at the level you are talking about. If you were doing some SEC filing for a sponsoring company, yeah, sure. But if you have to ask if flipping a house will be taxed as a long term capital gain or regular income, you don’t need an accountant, you need a basic book on business tax law. There are a lot of good ones out there. I recommend John T. Reed’s tax book for real estate investors. It is very readable. Google his name and you can find it. He does not sell on Amazon. I would guess there are some Dummy books that cover business taxes too. You can pick those kind of books up for less than the cost of a sandwich.

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I am not a lawyer or an accountant but I have to disagree with AndrewD. I disagree that there is no risk. Imagine somebody falls through a soft floor and sues for $500,000, which has happened. We are in court at least once per month typically for evictions and we are sometimes countersued. In a recent case, a tenant refused to sign for the title that we were supposed to transfer to her, and now she is suing us for refusal to deliver title. I do not want to be the defendant personally and have that on my record even though a case like this is minor. I don’t want to be personally responsible for the larger situation.

In another case, a tenant filed a lawsuit against me and a park manager personally. My attorney sent a motion to dismiss to the judge and it was dismissed immediately because the LLC should have been the defendant.

Not all lawsuits are trivial. Until you know what if feels like to have a 7 figure lawsuit filed against you, you may not appreciate the benefit of paying $100 to form a LLC.

I disagree on the fact that incorporating draws double taxation. You can elect subchapter S status and taxes are passthrough.

You don’t know if ValentineP makes $25,000 per year or $10,000,000 per year and the tax structure would vary. Depending on how much he makes it may be disadvantageous or not to form a company, hire himself, and choose the proper mix of paying salary versus distribution. I can assure you that the ratio varies based on the 2 income levels.

You don’t know if ValentineP is worth $25,000 or has $10,000,000 in assets including real estate, cash, stocks, and businesses. If he was in the latter category he would not want to risk all his assets because of a lawsuit on only one of those assets. Thus, they must be kept separate.

I do agree that for some people it is easy to research this and figure out the tax and legal implications on their own and form a company or Corporation on their own, but you cannot assume every person out there has the expertise that you may have to be able to do this research. Also, for some people, time is precious and it is worth it to pay a few $100 extra to have guidance or full service incorporation from their attorney or CPA.

Lastly, because I am not an attorney or CPA, it is not legal for me to provide advice in this matter to ValentineP, but the fact that he asked means he wants guidance. Thus, the only people he can go to to satisfy his want would be an attorney or CPA.

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