Who We Help · Real Estate · Flippers & Developers
Flipping US property? Structure it before the first offer.
A flip is not an investment in the IRS\u2019s eyes — it\u2019s a business. That means ordinary income instead of capital gains, no 1031 exchanges, FIRPTA withheld on the gross sale price even when your margin is thin, and one structural decision (the entity you buy through) that determines whether you pay tax once or twice. All of it is manageable when it\u2019s planned before the purchase.
By the AnalytIQ Accounting team · Last reviewed: August 12, 2026
Dealer, not investor — and why it matters
Property bought to renovate and resell is inventory. Profit is ordinary income at 10–37% US rates — no capital-gains rate, no 1031 exchange, no installment deferral. Canada agrees: flip profit is business income, 100% taxable (no 50% capital-gains inclusion). The planning isn't about pretending you're an investor; it's about structure, timing, and credits so the same dollar isn't taxed twice.
The FIRPTA cash-flow trap on thin margins
Every sale by a foreign owner triggers FIRPTA withholding at 15% of the gross price — on a flip with a 10% margin, that's more than your entire profit locked up with the IRS until refund time. The fix is Form 8288-B filed before closing, capping withholding at the actual tax. The IRS takes about 90 days, so it belongs in your exit timeline, not your closing week.
The entity decision that makes or breaks the math
| Structure | What actually happens |
|---|---|
| US LLC | The classic mistake. CRA treats it as a corporation: US taxes you as it\u2019s earned, Canada taxes distributions as dividends, and the foreign tax credit is denied — combined rates can pass 70%. |
| US Limited Partnership | The standard fix. Flow-through in both countries, treaty-coordinated credits, accepted by most US lenders. Often a small GP entity + you as LP. |
| Direct personal ownership | Simple and workable for one-off flips; no liability shield. |
| Corporate structures | For scale developers: 21% US corporate rate + treaty withholding on repatriation — worth modelling once volume justifies it. |
The filings that stack up
A flip is a US trade or business — 1040-NR (or 1120-F for corporations) is mandatory, plus state returns where the property sits. On the Canadian side: T1135 for property and entity interests over CAD $100,000, and a ≥10% stake in a US entity can make it a foreign affiliate requiring Form T1134 — the two most-missed forms among cross-border investors.
Sources: IRS — FIRPTA withholding · CRA — foreign reporting.
Common questions.
My US lawyer set up an LLC. Is it too late?
No — repair engagements are routine. Options range from check-the-box elections to restructuring before the next project. The earlier we look, the cheaper the fix.
Can I use a 1031 exchange to defer tax on my flips?
No — 1031 exchanges are for investment property, and flips are inventory. Anyone promising otherwise is describing a structure that will not survive review.
Do I charge or pay sales tax on a flip?
Real property sales aren\u2019t sales-taxed, but renovation materials and contractor arrangements vary by state — and state income tax on the profit applies where the property sits.
Related reading
Flip the house, not your tax rate.
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