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Stephen G.
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I bought a house in July 2009 to fix up and flip. It hasnt

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I bought a house in July 2009 to fix up and flip. It hasn't sold yet, but I am hopeful. This is not my primary residence, I own the house I live in as well. This one is empty and staged for showings. Here are the questions:

May I capitalize the carrying costs (utilities, monthly fees) and just net it all for a capital gain in the year it sells (2010)?
Am I OK to put the mortgage interest expense and property taxes on my Schedule A for 2009 along with my primary residence tax & interest?

This is my first one, probably will do it again, but not more than a couple a year.


Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.


Basically, what you have here is investment property. Therefore all the costs you mention can be "capitalize" and carried in "inventory" until the property is sold.


You just have to be careful not to turn this activity into an operating business as then you'll be dealing with ordinary income, Self-Employment tax, etc. One or two projects shouldn't trigger that, but if you start to do 2 at the same time, 2 turns into 3 etc., you're starting to walk a thin line.




As far as the mortgage interest goes, it should be deducted as "investment interest" NOT in mortgage interest along with your personal residence mortgage interest. You need to be consistent. The real estate taxes should really be capitalized, let your conscience be your guide. :-]


I think that covers your questions, & I can't think of anything else to bring to your attention,



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Edited by Stephen E. Grizey, CPA on 4/1/2010 at 6:36 PM EST
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