many of today's real estate investors go into the transactions completely uninformed.

There is a huge misconception on the part of some people who think they can buy a residential home, not necessarily their personal residence, fix it up and then sell it; and then get what we used to call 'the old rollover provisions,' where you used the money you made to buy another piece of property for more than what you sold.

But there are two problems with that approach. One, that rule existed for personal residences only; and two, it doesn't exist anymore.

The rollover rule was replaced in 1997 by the current law that allows, in many cases, for the tax-free sale of a personal property. This is a great tax break if you're selling your primary residence after having lived in it for several years, but it does nothing for you, taxwise, if you're selling a house in which you have never lived. In this case, the residence is an investment property, and the tax considerations are completely different and definitely more costly.

IRS eyes flippers
When you complete several real estate transactions in a short time, don't be surprised to learn that the IRS might consider your property transactions as a business or trade rather than as an investment strategy. In that case, there's no way to get out of paying the higher ordinary income tax rates.

More On: http://biz.yahoo.com/brn/050922/17423.html?.v=1

Look,
If you're investing in "quick-turn" real estate. (I just hate using the word "Flip" as most people and by the way reporters, confuse this legitimate form of real estate investing with the "Illegal flips" that get so much negative press) You're doing it for profit. Treat it as a business! Don't try to cheat. If you have several investment strategies that you employ, besides this method of investing, get some education or even hire professional help. Seek competent advice regarding business structure and the tax implications of the different myriad of choices you have with regards to setting up your business, and set up one or more business entities. Keep your "quick-turn" properties and the money associated with them in the appropriate business entity, and separate the ones that you keep as income properties in another. Then PAY THE APPROPRIATE TAXES. It's the cost of doing business. There's no reason to fear the IRS. If you don't know the rules, seek competent professional help. There's great potential for profits in this business. When you profit, Uncle Sugar wants his. Make sure he gets it.
Jeff

I agree with Jeff, if it's a business and a profitable one, pay the taxes. There's no reason to take advantage of the laws as they are written and avail yourself of all the proper deductions, but if you are making money on a business, there's no reason to assume you shouldn't have to pay taxes on it, same as if it was an employee job with W-2 income.

Isn't there a tax deduction if you keep the property for one year or more?

You may be thinking of the capital gains issue. If you sell for a profit and have held the property less than one year, it is ordinary income; otherwise it is capital gain.

Of course, you can do a 1031 exchange on capital gain property to defer the tax liability till some time in the future.

Are there any good resources to explain all the tax/accounting rules? I am new to this business and am still trying to wrap my arms around the whole thing. Would talking to a lawyer, real estate agent or CPA be beneficial?

Any other helpful resources would be appreciated.

Thanks,
Shelley

The IRS website has several publications and topics that are helpful.

The key with the 1031 exchange is that you must be able to demonstrate under audit that you had the intent to hold the properties for investment. You must be careful when flipping real estate because your intent is to usually acquire, fix-up and flip and quickly as possible, so you are really holding for sale and not for investment.