Construction = Sch D Or Ss Tax

[PIGLEE]

I Have An LLC Partnership, but this could also apply to a Schedule C. And I seem to be brain dead at the moment.

They are building a Residential Home. Should it be treated as a capital gains item, or as a business subject to Self Emp Tax? If Self Employement I would think the home construction should be treated like Inventory.

The home is not ready to sell yet but the general expenses they have this year seem to be deductible from SS Income, if they are Member Managers.

[Bees Knees]

Home construction contractors treat the homes they build as inventory. The sale is not a capital gain because inventory is not a capital asset. All direct costs of building the home are added to the cost of inventory. When the house sells, these expenses are deductible against the sale price.

Your self-employment tax issue for LLC members is another story. The law is not clear. If the LLC is taxed as a partnership, then guaranteed payments would be considered SE taxable, but the distributive share of profits are not. The issue comes down to what is guaranteed payments and what is not? Guaranteed payments are the payment for services provided by the partner. The distributive share of profits represents payment for the LLC member’s investment in the business. So as long as you pay reasonable compensation for services in the form of guaranteed payments, and that amount is reported as SE taxable income, then you should be fine.