Taxpayer in past was in building business. For years he built homes as his only source of income. Over past few years the housing market dried up and he seemed stuck with one house he had been unable to sell. In 2012 he was able to sell his own personal home and moved into the vacant house that he also had on the market since building it. Normally all expenses for each house were taken at time of sale on his Sch C which included the interest on the construction loan. There is quite a bit of interest that has build up over a couple year period and he wants to know if we can use this on his tax return this year? Just wanting thoughts of others as to how to handle this? I know all other expenses involved in building go into cost of house, but just wondering about the interest if there is a way to use it. Don't think he will be building any more houses, but he does still have a Sch C and has transitioned into remodeling.
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I notice lots of people looking at my post but no replies. What are your thoughts? -
Here are my thoughts.
A client of mine did exactly the same thing before getting out of the home building market. We allocated the full building costs including interest to the cost of each home and therefore the home he bought was not treated any different and the interest increased his basis in the home. I am doing quite a bit of work for this client but not his tax return. His CPA mentioned at that time that the interest could be deducted each year paid, but for our own reasons this is not what we did. I am not sure if there were some strings attached to deducting the interest.
I am pretty certain that you cannot now deduct interest that was paid in prior years. I also believe that treating this house sale different than the others would be a change in accounting methods, if this is what it is.Comment
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I'm not certain either but it sounds like he has or had Capitalized inventory of this home on his Sch C and it has now been converted to personal. It would seem that now all of the costs including the interest capitalized would now be his basis for this homeComment
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