Discussion Archives:Buying houses and fixing up and selling

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Discussion Forum Index --> Advanced Tax Questions --> Buying houses and fixing up and selling


Discussion Forum Index --> Tax Questions --> Buying houses and fixing up and selling

Nshnider (talk|edits) said:

15 March 2008
If client buys houses fixes them up and then sells them. How do they treat the interest expense, capital imporvements and expenses such as insurance property tax etc.

Can they deduct on sch C or E or is it all capitalized and increase the basis

neil

Solomon (talk|edits) said:

15 March 2008
Sec. 263A(a)(2)(b)(1) and (g).

Nshnider (talk|edits) said:

15 March 2008
solomon

so all costs must be capitalized and when sold become part of cost basis. What if you are in the business of buying remodeling and then selling. do you then file Sched C for all your other expenses such as advertising, tools, utilities, taxes, mileage, etc

Wwtaxes (talk|edits) said:

15 March 2008
Nshnider - just in case you haven't seen them, search on 'flipping houses'. There were several discussions last year on this topic.

Nshnider (talk|edits) said:

15 March 2008
do utilities, insurance etc while the house is being remodled and ready to be sold capitalized????

Neil

Kevinh5 (talk|edits) said:

15 March 2008
everything

Nshnider (talk|edits) said:

16 March 2008
how about after the house is ready to sell and it sits for many months and you are still paying operating expenses such as utilities, insurance, interest, etc.

Can you expense them Neil

Larry0434 (talk|edits) said:

16 March 2008
Sec 263 A(f)(4)(B) ending on date property is ready to be placed in service or is ready for sale


Transferring in same question/same OP, asked in the middle of a different discussion same day, with the related responses. Same OP asked same Qs here, too: Discussion:Operating expenses on flipping, investment, property.

Nshnider (talk|edits) said:

15 March 2008
what about operating expenses such as utilities, insurance, etc while you have the house that you bought for investment. Where do you deduct them?

Neil

Larry0434 (talk|edits) said:

15 March 2008
It depends on the specific circumstances, dealer vs investor issues are key. You should seek a tax advisor experienced in these areas.

Nshnider (talk|edits) said:

17 March 2008
we are talking about an investor

Neil

Wwtaxes (talk|edits) said:

17 March 2008
I'll bet if saw TWO tax advisors, you might even get two different answers. I assume you've read the discussions here and elsewhere, so you probably have figured out that this is a gray area. If I recall correctly, there was a discussion that broke it down into operating expenses and capitalized expenses, and utilities fell under operating, but insurance fell under capitalized. However, I can't recall for sure, and I'll bet you could make the argument to capitalize them all.

Larry0434 (talk|edits) said:

17 March 2008
For a true investor, they would capitalize all expenses and offset any sales with them to decrease capital gains. However, the key is the determination of investor. Did they move any dirt? How many flips have they done. One is investor but 20 is probably not. Many issues with this determination including intent.

Nshnider (talk|edits) said:

18 March 2008
A true investor (only bought 1 or 2 a year. so you are saying the while the house (investment) is sitting waiting for a buyer to buy it, the insurance, utilities, maintenance, etc must be capitalized??

Can't the property taxes be deducted in year paid and interest deducted currently against investment income?

Neil

Larry0434 (talk|edits) said:

18 March 2008
If he is doing 1 or 2 a year over several years, the IRS will probably classify him as a dealer rather than investor. The houses in his hands would be inventory, gain would be ordinary and taxable by social security as earned income, holding costs during construction period (interest, property taxes, etc) would be capitalized under construction, and selling and holding costs during sales period (after construction is complete and certificate of occupancy is obtained) would be deductible.

Nshnider (talk|edits) said:

20 March 2008
No bought only one house can't sell but spends money for maintenance such as utilities, insurance, etc. I understand these costs are capitalized and increases basis. Does owner get to depreciate since it is investment property

Kevinh5 (talk|edits) said:

20 March 2008
NeilCPA, please consider taking some classes and CPE on taxation, seriously. NO.

Larry0434 (talk|edits) said:

20 March 2008
Good suggestion.

Gscarfino (talk|edits) said:

24 March 2008
Really guys, that's pretty rude. The purpose of this forum is so that we can pick each other's brain. We can't all be experts in every area.

Gail

Ekcpa (talk|edits) said:

24 March 2008
nshnider,

you can only depreciate items that are in business use. What business is the house involved in? It's not. It is either an investment(similar to stock) or it is on sch C and is inventory . Either way, not depreciable.

Tinleycpa (talk|edits) said:

24 March 2008
You don't want to depreciate it, becasue then it becomes a business expense. This is a topic that they really are looking at. I think that if there is only one say, I would do it as investment on Sehedule D.

Kevinh5 (talk|edits) said:

24 March 2008
Gail, when one obviously can't handle a tax issue, reading a post on the internet is NOT enough to turn then into a professional preparer. In this instance, which you only see part of in this thread because other questions were being asked in other threads, Neil was obviously WAY over his head. The advice for a CPA and accounting professor to take some tax CPE was not rude, but obviously necessary, as he may have had lots of theoretical academic knowledge, but needed additional education in practical tax application. From the tone of his COLLECTIVE questions, not from the tone of this one, I had surmised that this CPA needed to go back to school before attempting complex tax returns.
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