Flip Income reported on 1065

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What is the correct way to report income generated from the sale of a flip home reported on a partnership 1065 return? Since the gains are short term capital gains and will be treated as ordinary income, should the sales transactions be reported on Sch D Part I for short term capital gains held less than one year? I know that it can be argued that if flipping homes is the only business activity in the company that the homes purchased and sold could be treated as inventory and activity would be reported on page 1 of the 1065. If anyone has experience in how the IRS would prefer to see this activity reported I would love to hear your feedback. 

Thanks,

Carter Lance

@Carter Lance , I am sure you made money on your flips, so you are asking :) Congrats. 

IRS views this as page one transaction. There are some cases you can argue it a capital gain, but since the short-term capital gain is taxed as same as ordinary rate, there is no tax benefit unless you have some capital loss that needs to use against the capital gain.  Capital Loss deduction is limited to 3000 a year so people so people try to have a capital gain to offset the loss. 

In your case,  I am assuming that you started a partnership to flip a property without any intention of holding a property as in investment, so the profit is not a capital gain.  it's just ordinary income. 

The transaction goes on page one of 1065 as ordinary business income.

As a side note, If you plan to do this more often and make decent money, consider electing an S-corp. You will get to keep more of your profit by avoiding Self-employment taxes.