Taxes for flipping schedule C vs investment
Brier, WA · Member since 2013 · 29 posts · 4 votes
Hello Community,
I opened an LLC, purchased a flip with it in 2018, had a bunch of issues while rehabbing it, when we were done with it, it didn't sell quickly, we try to refinance it, bank made me quit claim deed it to my name and the refinancing feel through. Finally, it sold at the beginning of 2019.
I know that is better to talk to a tax professional but my tax professional seems to be lost. On your experience, would it be better to consider it an investment or file schedule c ( purchased under company name and sold under mine, only one flip that year)? I haven’t included the costs for this flip in 2018, do I need to amend it if included in Schedule C?
What type of expense the 2018 property taxes would be I schedule c ?
I would really appreciate tour input .
@Patricia Vildozo It's a combination of the comments on here. The taxing authorities look at intent along with consistency. You can say your intent was an investment and put on your Schedule D however if you're doing a few fix and flips a year then your intention will be irrelevant and taxing authorities will look at the consistency of the type of work you're doing and classify it has ordinary income for your Schedule C. If you're planning on doing this type of work in the future then classify it as ordinary income to stay consistent, if it was one for that year then look at doing an Schedule D. Not sure of the property value yet the tax savings might not make it worth it (i.e. accounting and tax costs = 2K; amended tax savings is 1.5K). These high accounting costs sound like a real possibility with your incompetent accountant. Shoot me a PM if you want to connect and discuss further.
Some other notes; you have single member LLC so your name vs LLC name won't matter for tax purposes (I think this was mentioned). If you lost money then you'll have a loss carryover which may not be good now yet could help you in the future, typically your net operating loss (NOL) will offer more tax advantages than a capital loss (on your schedule D). Finally you may want to erase this post if you're planning on using Schedule D...
@Patricia Vildozo Are you the sole member of the LLC? If so, then quit claiming it to yourself won't matter for taxes, since the LLC is disregarded and you would file Sch C or Sch D on your personal tax return.
The expenses for 2018 would be capitalized, so you don't have to amend 2018. You would expense the cost of the rehab and purchase in the year you sell the property (2019).
It sounds like your intention was to rehab and sell the property, which makes it a construction project that you would report on Sch C. If your original intention was to rehab the property and then hold it as a rental, yet due to your financial circumstances you decided to sell it, then you may be able to classify it as an investment and file it on Sch D.
You should seek out a real estate CPA to review the situation with you and advise you on the best course of action for filing your taxes.
Hello Community,
I opened an LLC, purchased a flip with it in 2018, had a bunch of issues while rehabbing it, when we were done with it, it didn't sell quickly, we try to refinance it, bank made me quit claim deed it to my name and the refinancing feel through. Finally, it sold at the beginning of 2019.
I know that is better to talk to a tax professional but my tax professional seems to be lost. On your experience, would it be better to consider it an investment or file schedule c ( purchased under company name and sold under mine, only one flip that year)? I haven’t included the costs for this flip in 2018, do I need to amend it if included in Schedule C?
What type of expense the 2018 property taxes would be I schedule c ?
I would really appreciate tour input .
It appears you had a single member LLC so all that the IRS cares about is what your intention was. If you intended to flip, it's a flip on Schedule C and it doesn't matter how long it took to flip (to you of course it matters, but to the IRS it doesn't). You have the wrong "tax professional" if you are going to invest in real estate and they don't know real estate investing.
It's ordinary income tax subject to self employment taxes.
@Patricia Vildozo It's a combination of the comments on here. The taxing authorities look at intent along with consistency. You can say your intent was an investment and put on your Schedule D however if you're doing a few fix and flips a year then your intention will be irrelevant and taxing authorities will look at the consistency of the type of work you're doing and classify it has ordinary income for your Schedule C. If you're planning on doing this type of work in the future then classify it as ordinary income to stay consistent, if it was one for that year then look at doing an Schedule D. Not sure of the property value yet the tax savings might not make it worth it (i.e. accounting and tax costs = 2K; amended tax savings is 1.5K). These high accounting costs sound like a real possibility with your incompetent accountant. Shoot me a PM if you want to connect and discuss further.
Some other notes; you have single member LLC so your name vs LLC name won't matter for tax purposes (I think this was mentioned). If you lost money then you'll have a loss carryover which may not be good now yet could help you in the future, typically your net operating loss (NOL) will offer more tax advantages than a capital loss (on your schedule D). Finally you may want to erase this post if you're planning on using Schedule D...