Client has oridinary income from job of roughly $400K, as a side job he decided he would provide money for a residential house builder to build houses and his return would be 1/2 the profit, he claims he is in the business of building houses now. He got a loan for $300K and used that to pay for all the expenses to build his first house in 2012 and he finished the house in Sept 2012.
Total expenses paid for house is roughly $350K. He does meet with the builder and provide feedback for the builder and go to the house on regular basis to monitor how its coming along.
The house did not sell in 2012 so he has the $350K of expenses and no income.
So, on one hand I want to sched c it as it is a business he claims to actively participate in, but not being familar with how builders businesses work it does not seem right that I can have a business loss of $350K and no income and then next year he will have the gain
Or, is this a Sale of asset 4797 form when he sales the house and the expenses paid are the assets (house) basis and merely considered an investment?
Bottom line - how should the expenses (Asset Basis) get recorded and when? Now that I think about it, as the bills were paid for the building the house it goes in as the basis of the House (Asset) and when he sales it there is a gain or loss.
Been a long day, I hope that makes sense.
Total expenses paid for house is roughly $350K. He does meet with the builder and provide feedback for the builder and go to the house on regular basis to monitor how its coming along.
The house did not sell in 2012 so he has the $350K of expenses and no income.
So, on one hand I want to sched c it as it is a business he claims to actively participate in, but not being familar with how builders businesses work it does not seem right that I can have a business loss of $350K and no income and then next year he will have the gain
Or, is this a Sale of asset 4797 form when he sales the house and the expenses paid are the assets (house) basis and merely considered an investment?
Bottom line - how should the expenses (Asset Basis) get recorded and when? Now that I think about it, as the bills were paid for the building the house it goes in as the basis of the House (Asset) and when he sales it there is a gain or loss.
Been a long day, I hope that makes sense.
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