I am a freelance bookkeeper, doing this job for almost 30 years. I have
been self-employed since approximately 1992.
I am in escrow for my 2nd house to flip this year and was told that in order to use the income from these flips I need to show that I’ve been doing this
"work" for 2 years (claiming the income on 2 tax returns).
Is this true?
1031 a better option?
If your profit is (or coud be) 100% directed into a successor investment prop then you could use a 1031 tax-free exchange but this needs to be planned and begun with how 1st prop is sold, including a 1031 paragraph in your P&S Agreement on prop 1, then having 1031 trustee hold the profits and apply same to prop 2 within certain limited time later (6 M as I recall).
Lots of REI pros have done this with long strings of sales going back years and have built large nest-eggs all within the 1031.
Yes, in most cases, you will need two years of income in the same field in order to use that income to qualify for a loan. This is how it was in the old days before the rules were thrown out the window, and most lenders have returned to that standard.
To the others reading the thread.
A 1031 tax deferred exchange will not work if the property being sold was not held for investment. If you buy, fix, sell, then you can not use the 1031 option. ‘Flips’ is not a technical term so hard to say what a person did. Normally it does mean they did not hold long enough for the 1031 rules to apply.