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I took a construction loan and built 2 residential

properties...completed in 2016...I sold both...
I took a construction loan and built 2 residential properties...completed in 2016...I sold both properties on 05/12/2016 and 09/30/2016....how do I report these sales in my 2016 taxes....I did not receive any 1099-S and I made profit on both sales
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Answered in 3 minutes by:
9/25/2017
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,387
Experience: Certified Public Accountant
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Hi, my name is Mark. I will be happy to help you with your questions. Was this an investment are you going to continue this type of activity? Have you built houses in the past?

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Customer reply replied 3 months ago
this was just an investment, a one off....no I have not built in the past...but I have 3 rental properties

What was your intent? Was these intended to be rentals or flips?

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Customer reply replied 3 months ago
flips

If it is a business activity it would be reported on schedule C. The net income would be subject to both income and self employment taxes. If it is considered an investment then the sales would be reported on schedule D. Since the property was owned for less than 12 months the gain would be a short term capital gain.

How much gain did you net? Do you have any other earned income (wages, or self-employment income)?

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Customer reply replied 3 months ago
total gain is $29,221.00
so I have nothing to do with Form 4797 and depreciation?
Customer reply replied 3 months ago
I have w2 income

You would use 4797 if you place the property into service and depreciated it. So if the properties were rentals you would use depreciation and report the transaction on form 4797. The tax difference between the two treatment would be 15.3% (assuming that you earned income is below the FICA limit).

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Customer reply replied 3 months ago
no I never placed the properties for service as rental
so how do I report it on Schedule D Form

You would show your original purchase date, price, and the cost of improvements. You would show the sales date and sales price. You would want to separate the two transactions.

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Customer reply replied 3 months ago
treated as an investment property...report on Schedule D on Form 8949 as short term gain(showing the cost and sales, with date purchased and sold)
ok, thank you...I got it

This is a tough one. It depends on your intent. If you intended to make the properties rentals and then the market conditions changed causing you to decide to sell the properties then they would be considered an investment. If you intended to flip the properties this would be a business and reported on schedule C.

It was my pleasure. I was happy to help. If you would take a moment to rate my response I would greatly appreciate it. There should be stars located above the question. This is the only way that I will receive credit for helping you today. If you have additional questions or need clarification I would be happy to continue the conversation. Thank you.

Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,387
Experience: Certified Public Accountant
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