flipping homes/properties - C, D, other?

[IEOMB]

Hi, I'm hoping someone can point me in the right direction.

I am buying foreclosure properties, fixing them up in my spare time (and with contractors) and selling them. (1) Should I be filing this on a schedule D (gain/loss on investments), schedule C(and paying self employment taxes) or some other form/schedule? (2)Maybe I should incorporate and run it thru an s-corp and pay mayself a small salary. ? (3) anyone know what is common for people that buy-fixup-sell properties like i am starting to do?

Kind regards,
Mark

[gboykin]

Are you also a tax preparer?

[IEOMB]

yes, i am a tax prep

[Gretel]

Well, anyone posting here needs to possess TTB. I can't image someone buying it not being a tax return preparer.

Back to the original question: A reoccurring event of flipping homes calls for a Schedule C. If it is worth the trouble of incorporating to save SE depends. One factor to consider is if after paying a reasonable salary, is there enough profit not subject to SE left to make it worthwhile.

[DaveinTexas]

I don't think you could

Hi, I'm hoping someone can point me in the right direction.

I am buying foreclosure properties, fixing them up in my spare time (and with contractors) and selling them. (1) Should I be filing this on a schedule D (gain/loss on investments), schedule C(and paying self employment taxes) or some other form/schedule? (2)Maybe I should incorporate and run it thru an s-corp and pay mayself a small salary. ? (3) anyone know what is common for people that buy-fixup-sell properties like i am starting to do?

Kind regards,
Mark

Run it through an LLC or a Corp without titling the properties in the name of the entity and getting a property titled in a corp or LLC is tough these days unless you pay cash for the properties or have substantial collateral (personal guarantee).

Also, if the activity is considered regular and continuous, you will be reporting these on Sch C and not D.

[JoshinNC]

Too simple a response

Back to the original question: A reoccurring event of flipping homes calls for a Schedule C.

Just because the event is reoccurring doesn't necessarily mean it's a Schedule C activity. If I buy and sell stocks, bonds or mutual funds on a reoccurring basis I'm still an investor. I would argue till I'm blue in the face that anyone not actively in the construction trades that buys and sells RE on the side is an investor with reporting on Schedule D.

[Roland Slugg]

The answer to your original question is that it depends on many factors. What factors? Well, the primary ones are the number of such homes bought and sold each year, the amount of "improvements" or fixing-up added to them, and whether the TP does most of the improving himself, or if he hires others to do most of it. Another influencing factor is the similarity of the home flipping activity to the TP's regular business. A general contractor whose income is derived from various types of residential remodeling projects would have a hard time claiming his flipping activities produced Schedule D income, especially if he added considerable remodeling himself between a property's purchase and sale. Someone like a teacher, lawyer, airline pilot, etc. on the other hand, should have no difficulty using Schedule D, as long as the number of houses flipped was low ... like one or two a year, maybe three.

If you have another full-time job, that's not in the construction trades, and only flip one or two houses each year, I'd report the sales on Schedule D.

[OtisMozzetti]

The answer to your original question is that it depends on many factors. What factors? Well, the primary ones are the number of such homes bought and sold each year, the amount of "improvements" or fixing-up added to them, and whether the TP does most of the improving himself, or if he hires others to do most of it. Another influencing factor is the similarity of the home flipping activity to the TP's regular business. A general contractor whose income is derived from various types of residential remodeling projects would have a hard time claiming his flipping activities produced Schedule D income, especially if he added considerable remodeling himself between a property's purchase and sale. Someone like a teacher, lawyer, airline pilot, etc. on the other hand, should have no difficulty using Schedule D, as long as the number of houses flipped was low ... like one or two a year, maybe three.

If you have another full-time job, that's not in the construction trades, and only flip one or two houses each year, I'd report the sales on Schedule D.

I would think that a real estate person would have just as much likelihood of conducting the flipping activity, with others hired to do "improvements" and fixing up, as would a construction contractor.

[appelman]

Real Estate Professional?

Nobody seems to have brought up the question of meeting the IRS requirements to be classified as a real estate professional.

[Davc]

That's because it has nothing to do with the question.

[Roberts]

Hi, I'm hoping someone can point me in the right direction.

I am buying foreclosure properties, fixing them up in my spare time (and with contractors) and selling them. (1) Should I be filing this on a schedule D (gain/loss on investments), schedule C(and paying self employment taxes) or some other form/schedule? (2)Maybe I should incorporate and run it thru an s-corp and pay mayself a small salary. ? (3) anyone know what is common for people that buy-fixup-sell properties like i am starting to do?

Kind regards,
Mark

As far as #1 goes, it depends. If you do 2-3 per year while holding a regular job, the IRS won't throw a fit if you put the sales on Schedule D as you claim it as an investment practice. If you don't hold a job, the IRS is going to say this IS your job and it should go on schedule C. If you hold a job and do 10+ of these flips per year, very likely the IRS will say it's your job. There are no hard and fast rules on this and there's no set guideline on saying it's a schedule D transaction today and you meet schedule C tomorrow. Be assured the IRS is on the lookout for people putting the sales on a schedule D when it should be on a schedule C but they've never (as far as I know) put out a list we can walk through to determine where it should be. If you consider flipping houses to be at least a significant portion of your job, you should probably put it on Schedule C IMO.

#2, if it's your business and it's a schedule C type scenario, I'd incorporate and run it through that for legal liability reasons. You don't want a lawsuit coming back and taking your personal assets. Many people incorporate simply for a rental property and this would be the same reasoning.

[Snaggletooth]

Effect on 4797

has not been brought up yet, since that is what may happen when the house gets sold.

The most direct thought (not to exclude unusual situations) is that Schedule D treatment gets favorable
capital gains treatment, but also limits losses to $3000/year.

Sch C treatment simply shows sales as revenue and costs as costs. I'm thinking there might be a
percentage-of-completion requirement if the business is substantial.

4797 treatment is left out of the choices above. This may happen if a unit has been converted to a rental,
and there has been bucket loads of houses fall into this category in last 5-6 years. The 4797 may or may
not result in capital gains, but if there is a loss, there will not be a 3000 limit.