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Help!! Flip Accounting
BP Community I need some help. First off I understand that you are not a tax professional (and even if you are you are not giving me professional advice). I plan to speak with my tax advisor on Monday but I need to classify some expenses and be a bit more educated when I talk with him. So I have a couple of questions. Any help is appreciated.
1. Cash or Accrual Method? Background- I flipped a piece of vacant land and netted over $100k in profit in 2018. I also flipped a house in 2018 that was sold in 2019. It was a huge rehab (around $130k). All costs with the property took place in 2018. It went on the market in late December and closed in January. If I am understanding Cash Method Accounting correctly, then I would show a loss of $30k in 2018. However, I would then not be able to claim all those costs in 2019 against the sale of the property. I am under contract for a small apartment building which I plan to cost segregate to assist with this as well as some equipment purchases and vehicle depreciation.
2. Income Statement expenses- Direct Labor? As a flipper, where do my costs land? Is an electrician/ plumber/ roofer direct labor? Are houses considered inventory (I know there's something here with being a dealer that I'm not quite clear on) ? Which expenses go to cost of goods sold (i.e. all costs directly associated with the property) and do they need to be broken down or just lumped on the income statement?
I realize that these are somewhat broad questions, but I think that a bit of feedback would go a long way toward me providing my accountant with something better than the 4 spreadsheets that I have now. Thanks for your help!