Profit From Flipping a House

[Steve Sitter]

I bought a house in 2011 as an investment, incurred expenses while
rehabing, but I didn't sell it until 2012. Do I list all my expenses
through Dec 31, including the purchase price, on the 1040 business
expense form? (I'm an LLC.) If I do, that greatly skews my adjusted
income, allowing a huge refund. If so, then do I just list the gross
sale amount on my 2012 taxes next year and pay more in taxes?

Thanks

 

[removeps-groups]

I bought a house in 2011 as an investment, incurred expenses while
rehabing, but I didn't sell it until 2012. Do I list all my expenses
through Dec 31, including the purchase price, on the 1040 business
expense form? (I'm an LLC.) If I do, that greatly skews my adjusted
income, allowing a huge refund. If so, then do I just list the gross
sale amount on my 2012 taxes next year and pay more in taxes?

I'm not familiar with the 1040 business expense form.

An LLC usually files form 1065, but if it a single member LLC it can just report income directly on form 1040.

Did you sell at a profit or loss? I think the gain is a capital gain and thus the rate is 15% and the loss is limited to $3000 with indefinite carryover.

Did you make an IRC election on your 2011 tax return? If you didn't file the return yet then I think you can still make the election now. It allows you add the mortgage interest, property tax, etc and such to your cost basis.

 

[paulthomascpa]

I bought a house in 2011 as an investment, incurred expenses while
rehabing, but I didn't sell it until 2012. Do I list all my expenses
through Dec 31, including the purchase price, on the 1040 business
expense form? (I'm an LLC.) If I do, that greatly skews my adjusted
income, allowing a huge refund. If so, then do I just list the gross
sale amount on my 2012 taxes next year and pay more in taxes?

Sounds like the house is your "inventory" and you improved that inventory by
making those rehab costs. For most of the expenses you would increase your
basis and take the profit or loss with the sale of the house. If this is
your business, then there would likely be non-house related operating costs
(tool and equipment depreciation, office supplies, etc) that are deductible
in the year incurred.

 

[removeps-groups]

Sounds like the house is your "inventory" and you improved that inventory
by making those rehab costs. For most of the expenses you would increase
your basis and take the profit or loss with the sale of the house. If
this is your business, then there would likely be non-house related
operating costs (tool and equipment depreciation, office supplies, etc)
that are deductible in the year incurred.

Are you suggesting that the profits are ordinary income taxed at ordinary
rates plus FICA? Talk of inventory reminds me of Schedule C.

 

[ira smilovitz]

"paulthomascpa"
wrote in message


Are you suggesting that the profits are ordinary income taxed at ordinary
rates plus FICA? Talk of inventory reminds me of Schedule C.

That's right. Flipping real estate quickly becomes a Schedule C business and not an investment gain. The threshold is very low, something like 2 or 3 properties.

Ira Smilovitz
Leonia, NJ

 

[removeps-groups]

That's right. Flipping real estate quickly becomes a Schedule C business and not an investment gain. The threshold is very low, something like 2 or 3 properties.

Is there a treasury regulation about this?

 

[D. Stussy]

business and not an investment gain. The threshold is very low, something
like 2 or 3 properties.

Is there a treasury regulation about this?

Hint: I'd look for court cases....