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I flipped a house purchased in 2016 and sold in 2017, not…

I flipped a house...

I flipped a house purchased in 2016 and sold in 2017, not sure how to report on my tax return

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

I purchased 3 properties in 2016, sold one in 2017. Purchased another property in 2017 and sold that in 2018. Not sure what to do with my taxes

Accountant's Assistant: Is there anything else important you think the Accountant should know?

I didn't report the 2016 as inventory on last years return, not sure if I was supposed to

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Answered in 10 minutes by:
3/20/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,284
Experience: Taxes, Immigration, Labor Relations
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If you are flipping houses as your business activity - that is your inventory.

Based on your information - you have purchased 3 properties in 2016 and another property in 2017 - that is good evidence of business activity.

You do need to report inventory.

If you did not report end of year inventory on your 2016 tax return - then you still will report beginning inventory on your 2017 tax return - and attach a note to explain that discrepancy.

that will allow you to avoid amending your 2016 tax return.

Questions?

Lev
Lev, Tax Advisor
Category: Tax
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Customer reply replied 4 months ago
How do I handle taxes, labor and material - do I just add that to the total cost of the property? Or do I need to put those in as expenses?
Phone call session started

Uniform Capitalization (UNICAP) rules of § 263A(a)

require the capitalization of all direct costs and certain indirect costs allocable to real property

See here

https://www.irs.gov/businesses/cost-segregation-atg-chapter-6-1-uniform-capitalization

So all direct costs as they are related to a specific property - including taxes, labor and material - are capitalized.

You will deduct these costs as COGS - cost of goods sold - when the property is sold - and will offset gross income.

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Customer reply replied 4 months ago
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Customer reply replied 4 months ago
Sorry, one more question. I hired a contractor to do the work on the home I sold. Do I report that as a Cost of Good Sold under labor costs or do I report it as a a contractor with a 1099. He only worked on the home that I sold.

If that expense is specifically related to that property - that cost is capitalized under COGS under labor cost.

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