Discussion:Complicated issues - Real Estate Sch C
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Discussion Forum Index --> Tax Questions --> Complicated issues - Real Estate Sch C
| 6 October 2008 | |
| I have a client who has real estate business with apt bldg and 2 houses fro rent and bought and sold one house after repair...he puts everything through a SMLLC bank account...now, can I lump that together as schedule C on 1040 for the owner as SMLLC is treated as Sole P if no election is made...all properties are in owner's personal name...he has given me all the bank statements for 2007 for LLC..now, do I show the rent revenue and sold property as revenue and cogs as purchase price of the house and repair cost...all other costs are categorized as list of expenses like interest, utilities etc. etc...Is this okay for the tax return... | |
| 6 October 2008 | |
| You say the client has a real estate business. Is that something in addition to the rentals? | |
| 6 October 2008 | |
| Rental income from real estate should not be shown on Schedule C. In addition, unless the real estate was held primarily for sale in the ordinary course of a trade or business, the sale of the house should not be shown on Schedule C. | |
| 6 October 2008 | |
| He buys and sell real estate, like rehabbing business...2 houses he bought in 2007 did not sell so he is renting them...he does have an apt building for rent...do I have to separate all out on schedule E as independent properties..what about the house he sold, that was part of the business, he is in..that is what he does, manage his rentals and buy fix and sell real estate...he buys for X, spends Y and sells for Z..isn't that straight forward math for schedule C as a business... | |
| 6 October 2008 | |
| It does sound like he has a Sch C business for the rehabbing. Nevertheless, the apartment building would go on Sch E. | |
| 6 October 2008 | |
| What about the 2 houses he bought then could not sell and is renting now...cost+repair basis on asset ledger and rent as income on schedule C...or do I need to list these separately in Sch E... | |
| 6 October 2008 | |
| All rehabbing goes on Sch C. As a real estate dealer (I gather that from the rehabbing description) the sale of the one house and the rental income from the other two (inventory) go on Sch C as well. The apartment building goes on Sch E as that is not part of his rehabbing business. | |
| 6 October 2008 | |
| You should also refer back to this discussion, where the situation was presented somewhat differently, but the advice should still be considered under your current facts and circumstances. | |
| 6 October 2008 | |
| Soloman,
He is not a real estate Dealer...he is just owner of another business and also does this on the side..that is the reason he only does 1-2 properties a year..now the market sucks so he is ending up holding and renting... | |
| 7 October 2008 | |
| "He buys and sell real estate, like rehabbing business..."
I inferred from your earlier post this was a rehab business. He bought two and sold another in one year. Was not the intent to flip them (and he did one of them) but because of a poor market your client is stuck with the other two? Only you can determine his intent, but it seems to me to be a business. If he is not in business, then Sch E for all rentals and the sale on Sch D. BTW, as Trillium noted, read the dialogue from your original post of 8 months ago. To refresh your memory: "KCGuy said Let me summarize this to see if I got it right: He is actively managing his rental and rehab business through one bank account (in the name of LLC)...all the money deposits and expenses are paid through this account for both businesses... I would show Rental business on the Schedule E and rehab business on Schedule C...he would have to break out expenses and income for each business out of the common bank account... Did I get it right finally??" | |
| 9 October 2008 | |
| The previous post left me with an impression that real estate can never be on Schedule C...that was the reason for me to make that statement..Now as per this thread, I see that he can put real estate assets on schedule C and show it as rehab business which is what it really is...because market is tough, it is not easy to sell however if you get it fixed and can not sell, you rent and try to cover the expenses until you find a buyer...the intent is always to sell if you can find a buyer which is big if these days in KC area... | |
| 9 October 2008 | |
| His LLC documents states "to buy, sell or hold real estate for investment purposes"..that should be clear indication of what his intent is... | |
| October 9, 2008 | |
| Doesn't matter in this. Yes, his normal buy/sell/rehabbing is Sch. C. When he chooses to rent something out, it moves to E. | |
| 12 October 2008 | |
| So he buys to rehab and sell in April 07..fix it up by July 08 but can not sell as the market is not good...then rents it for rest of the year of 2007...now he shows the rent on schedule E and all the cost of repair and other costs...Asset ledger shows a asset with property address with placed in service Aug 2007..Cost basis is the purchase price plus capital improvements if any...most of it was just repairs and not capitalized...now in 2008 if he sells it then it will move to schedule C as a sold property with cost basis moved from asset ledger...cost os sale is shown as expense on schedule C as cost of business...it looks, I finally got it the way it should be..right? | |
| 12 October 2008 | |
| "I finally got it the way it should be..right? "
No. It is either C Sec. 162 or E Sec. 212. "...most of it was just repairs and not capitalized..." See Sec. 263A. | |
ReadMyLips (talk|edits) said: | 12 October 2008 |
| He may qualify as a "real estate professional" for the rental property portion. | |
| 12 October 2008 | |
| Perhaps, RML, but in view of "...he is just owner of another business and also does this on the side...", I have my doubts. There is not complete information for anything. | |
