I was hoping to get some feedback on a return I am preparing. When I started I thought it would be pretty straight forward, but am not feeling as confident now.
It is a 2008 tax return. The client was in the business of flipping properties. At the start of the year he had 6 properties with a total value of $1,940,000. All were purchased in previous years ranging from 2003-2006. During 2008 four properties were foreclosed. He received a 1099-A for all four and a 1099-C for $345,000 of cancelled debt in connection to one of the foreclosures. The total value of the properties foreclosed on was $1,390,000. He did not purchase or sell any other properties that year. He did have nearly $46,700 of repairs and upgrades on one of the properties in 2008. He did not file a 2007 or a 2006 return (that’s another story). He did file in 2005, but did it himself and did not list beginning or ending inventory.
Since he is in the business of flipping properties and had been for a number of years I am using a Schedule C. I started with a beginning year inventory of $1,940,000, I have $0 COGS, material and supplies of $46,700, and an ending inventory of $550,000. This results in a loss of $1,436,700 on line 12 of the 1040 and is more than enough to offset the $345,000 of COD income on line 21, so I am not planning to file form 982.
What I am not feeling overly confident about is my figures for beginning year inventory. I would prefer to use the ending year inventory from 2007 if there was one. Is this the best way of reporting the loss of properties indicated on the 1099-A. We generally don’t work with losses this big in our firm, so it frankly just makes me a bit nervous. Any thoughts?
It is a 2008 tax return. The client was in the business of flipping properties. At the start of the year he had 6 properties with a total value of $1,940,000. All were purchased in previous years ranging from 2003-2006. During 2008 four properties were foreclosed. He received a 1099-A for all four and a 1099-C for $345,000 of cancelled debt in connection to one of the foreclosures. The total value of the properties foreclosed on was $1,390,000. He did not purchase or sell any other properties that year. He did have nearly $46,700 of repairs and upgrades on one of the properties in 2008. He did not file a 2007 or a 2006 return (that’s another story). He did file in 2005, but did it himself and did not list beginning or ending inventory.
Since he is in the business of flipping properties and had been for a number of years I am using a Schedule C. I started with a beginning year inventory of $1,940,000, I have $0 COGS, material and supplies of $46,700, and an ending inventory of $550,000. This results in a loss of $1,436,700 on line 12 of the 1040 and is more than enough to offset the $345,000 of COD income on line 21, so I am not planning to file form 982.
What I am not feeling overly confident about is my figures for beginning year inventory. I would prefer to use the ending year inventory from 2007 if there was one. Is this the best way of reporting the loss of properties indicated on the 1099-A. We generally don’t work with losses this big in our firm, so it frankly just makes me a bit nervous. Any thoughts?