House flipper =

[Ricardo]

I have a client that flipped a house in '12.

I'm thinking a Sch C.

Is that correct or is there a better, correct way?

Thanx for your help.

Regards = Ricardo

[Burke]

Has he done this before? Is he going to do it again? Does he have another job? Generally, "flipping" has the connotation that he intended to buy and sell for profit. How long did he hold the property? Did he make improvements? What was his intent? Doesn't sound like long-term investment or rental was involved.

[JoshinNC]

Instead of us telling you why it should or shouldn't be on Sch C

why don't you tell us why you think it should?

[Ricardo]

He intends to do at least one per year and all of Burke's questions apply =

Regards = Ricardo

[JoshinNC]

Sounds like a capital sale

to me.

I would put it on Schedule D.

[geekgirldany]

I had a client that flipped a house in one year. The first year I put it down on Schedule D. I asked him at the meeting if he would continue doing more. He said at least one a year. I explained that I considered it being a business if flipping one or more a year on a regular basis. He never came back and was a long time client. So must have found someone else to do it on Schedule D.

For me, I give them a benefit of the doubt on the first year. After that I believe it is a business/Schedule C.

[ddoshan]

It can be a close call. But there is that court case about the fellow that sold lots each year. The court ruled that as he only sold a few a year it would not be considered a business. Something about 5 or less comes to mind.

[JoshinNC]

If your customer bought a new car each year and sold the "old" one

I had a client that flipped a house in one year. The first year I put it down on Schedule D. I asked him at the meeting if he would continue doing more. He said at least one a year. I explained that I considered it being a business if flipping one or more a year on a regular basis. He never came back and was a long time client. So must have found someone else to do it on Schedule D.

For me, I give them a benefit of the doubt on the first year. After that I believe it is a business/Schedule C.

Would you call him a car dealer?

[Burke]

Seems like we have been through this before. We agreed to disagree. But the consensus of the majority is that it is, indeed, a Schedule C activity.

[DexEA]

Would you call him a car dealer?

If he is buying the car to fix up and make a profit by reselling the car why wouldn't he be a "car dealer"?

[geekgirldany]

Would you call him a car dealer?

It is late here but I don't get what you mean.

[Burke]

If he is buying the car to fix up and make a profit by reselling the car why wouldn't he be a "car dealer"?

I once worked with a guy who did that. He bought them, fixed them up, and sold them, usually for a profit. He would be considered in the business of selling cars, although I doubt he ever thought of it that way, and I am pretty sure he did not have a business license. To him, it was fun.

[JoshinNC]

Because he's not "engaged in a business"

If he is buying the car to fix up and make a profit by reselling the car why wouldn't he be a "car dealer"?

He's making investments. He is purchasing a vehicle (house) at a below market rate, holding it for some period of time, possibly making improvements to the property, and then selling it when the value (or perceived value) is greater than what he paid for it. Engaging in this activity once or twice per year when it has absolutely nothing to do with one's full time job and when it takes up little, if any, of their productive time, is not a business.

In my world this is an investment.

[DexEA]

In my opinion

He's making investments. He is purchasing a vehicle (house) at a below market rate, holding it for some period of time, possibly making improvements to the property, and then selling it when the value (or perceived value) is greater than what he paid for it. Engaging in this activity once or twice per year when it has absolutely nothing to do with one's full time job and when it takes up little, if any, of their productive time, is not a business.

In my world this is an investment.

"Holding it for some period of time" and "making improvements to the property" are not one and the same. Holding property is an investment. Making improvements to increase value & turn a profit is more than just an investment.

[Roberts]

Whatever anyone says, it isn't cut and dry and it could be argued forever.

IMO you are Schedule D until proven otherwise. If they hold for more than 5 months and only do it once per year and work in an entirely different industry - Schedule D without a doubt. Doesn't matter how much in improvements they did, it's an investment activity.
If they work in the real estate industry, more likely a schedule C but it doesn't put them there.
If they do it more than 2x per year, likely a Schedule C.
If they are doing this with a planned rehab schedule and their goal is putting it on the market within 3 months - Schedule C. Per the IRS, time held is very relevant in determining investor or dealer.
How much is this "profit" in relation to their other income?
If they buy the property via a corporate shell, more likely a schedule C but nothing is cut and dry.
Did you advertise to prospective to buyers that a professional rehabber is selling the property? (literally it happened to me)


If they are obviously living off the profit - schedule C. If they are reinvesting their profits - sliding back towards schedule D.