Question regarding Tax on a Flip

[Bao Vu]

Hello everyone, 

I have a question regarding taxes on a flip as I am prepping the books. My partners and I purchased a property late 2023 and finished the renovation and sold the property in March of 2024. After all expenses accounted for, my Quickbooks is showing an estimated Tax bill of $93K. My question is when I file our taxes, will they count the purchase price from 2023?  As of 2024, it shows the sell price as pure income and all the expenses isn't enough to offset the tax. I hope this question makes sense as this is our first year filing and our first full year of operation. 

Additional info: 

We're also currently in a middle of a listing of our 2nd flip as well. There are expenses and a purchase price of this current property in the year of 2024.  

Thank you in advance. All inputs are appreciated. 

[Jake Baker]

@Bao Vu 

From a bookkeeper's perspective, here's how this should be reflected:

Tax Basis for the Flip:
For tax purposes, the purchase price of the property you flipped (bought in 2023, sold in 2024) will count as part of your cost basis. This includes:
- Purchase price
- Renovation costs
- Closing costs (buying and selling)
- Holding costs

These expenses offset the selling price to calculate your taxable gain. 

QuickBooks Setup:
For flips, I’d use the following accounts:

Flips in Progress (Inventory)
FIP - Purchase Price
FIP - Buying/Closing Costs
FIP - Rehab Costs
FIP - Holding Costs
FIP - Selling/Closing Costs

Real Estate Cost of Goods Sold (COGS)
COGS - Purchase Price
COGS - Buying/Closing Costs
COGS - Rehab Costs
COGS - Holding Costs
COGS - Selling/Closing Costs

At year-end (e.g., Dec 31, 2023), move flip costs to inventory and back into COGS on Jan 1, 2024. This ensures your books match the timing of your taxable income.

It sounds like you're off to a great start—make sure everything is categorized correctly and consult a CPA to confirm your setup.