Discussion:Purchasing Houses for resale

I ACCUMULATED EXPENSES AS PART OF THE BASIS PLUS IMPROVEMENTS FOR SCHED D. MILEAGE, ETC GETS TRICKY BUT DO SOME WORKSHEETS AND SEE HOW HE'S LOOKING AS A BUS VS INVESTMENT.

IF HE HAS MAIN JOB, THIS LOOKS MORE LIKE INVESTMENT. IF HE IS DOING IT FULL TIME, LOOKS MORE LIKE "FLIP THAT HOUSE" SCHEDULE C BUSINESS NAME.

I AM LOOKING FORWARD TO THE INPUT ON THIS ONE CPABOYD

But basically your are saying if I go the "D" route I can still add all the utilities and mileage etc., to the cost basis. For some reason I was thinking I could only do the actual cost of fixing it up.

http://www.taxalmanac.org/index.php/Discussion:Repairs_on_Investment_Property I am interested to see if anyone knows how to make the election to capitalize all costs that Blubby refers to in the above referenced discussion.

Thanks, Gail

As I understand your situation, you have a one time flip. According to the research I've done, most would consider this an investment and not a business, although one person warned that the difference is very tricky and you should seek a tax professional that deals with real estate. I have also been told that expenses must be capitalized under section 263A, but that once construction ends, the interest is eligible for deduction. THe problem here is that it seems that you (and me too) are trying to capitalize more than what is required. And I can't figure out if that is ok or not. I want to capitalize interest and insurance as well as capital improvements. The closest I found to an answer on this last issue is in the reference I gave above, but it seems that some technical glitches stopped the posting of the answer, and the contributors discussed it elsewhere instead. I doubt this helps much, but good luck anyway, and please post if you find out more.

I think all the expenses should be added to basis - but then I read conflicting info. thanks for all the feed back on this subject

Of course, the TP wants to take all expenses now and get a big loss to minimize taxes from other income (spouse, 1099R), but he doesn't understand that he will not only pay taxes on the profit next year, but also SE taxes. I am so tired of clients who go to an attorney to set up their business, come in with minimal paperwork, don't really know how it was set up, and then when they find out the tax consequences, they think I can just fix it for them.

Again, I'm not sure about the treatment here, but from what I've gleaned from other similar sietuations, generally EVERYTHING is capitalized if, as you stated, the client is fixing the place up for resale, with the possible exception of utilities and taxes (on Sch. A, subject to 2% limit) since they really have nothing to do with increasing the basis. Too many commas in that sentence...

Other thoughts?

Thanks for everyone's input, more comments are welcome.

Gail Scarfino

I've been researching this on and off for a couple of weeks, and there haven't been any replies that make it a slam-dunk. Everything I've read about it says that the IRS looks at the investment vs business issue on a case-by-case basis, and that there is no definitive rule of what makes it one or the other. I think you could set it up as a C if you really wanted to take some deductions this year, but if I could choose how to do my client's, I would choose an investment and put it on D, and capitalize all expenses. Good luck.

This has to happen fairly frequently, and I'm rather surprised I haven't been able to find much on that scenario.

Does anyone else have the answer offhand?

These do not really add to the basis, but are an ongoing expenses of maintaining and improving the initial investment. When the sale occurs, you have sold an improved investment. Hopefully, it has been more than one year and cash in on the capital gains treatment on schedule D (Sorry again for that cap)

C'mon, you geniuses, put the tax code to work and enter these items where they belong, and be done with it. If you go Sched C on the expenses, you better go Sched C on the final Sale. Or--LOOK OUT (yes, Shouting) That will be challenged.

Hope this helps J D Boyd, CPA Peoria, IL

you need to determine: what business is this guy in ? Is he in "flipping Business" or is this just an investment like buying shares of Microsoft, i.e. "Investment"

• It's Getting Deep

J.D. Boyd, cpa

I have never done this before but would much rather write off my expenses if possible. I have passive income (eg stocks and bonds) and non-passive income.