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Where to report profit of selling a house?

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Level 3

I have a client who is real state agent. In 2019, he purchased a house, did some remodeling and then sold it for some profit.  This house was not his main residence or second home. It was purchased solely to make some profits. Do I have to report this house on Schedule C? or Schedule D?

If he was not a real estate agent, where could I have reported this house? 

I appreciate your responses. 

Thank you,

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Level 11

Don't look here because the answer is within you.  Well, actually, within your client.  As others have pointed out, if it's a business, like selling Lamborghinis that may cost as much as a house, then it goes on Schedule C.  If it was an investment, because he knew the property would quickly increase in value, then it goes on Schedule D.  Putting it on Schedule C will likely increase what he owes, if there was a profit, because he will also have to pay self-employment tax.  Putting it on Schedule D, though, will mean his loss is limited to $3,000 instead of the full amount.  If he made money on this one, he might lose on the next -- the housing market has changed in some places, in the last couple weeks.  

In situations like this, you might ask him who did his return last year.  He may have been given an unfavorable answer by that preparer, and is hoping for a better one from you.  There is no law that requires you to prepare every return that walks in the door, but there are laws that require you to prepare a return that is true, correct and complete.   

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6 Replies 6
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Level 15
Level 15

Is this "one and done" or does he plan to purchase another house and continue flipping?


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Level 3

I think he is planning to buy and sell more. He does it for profit. He buys the house, remodels it and sell it. However, in 2019, he only purchased one house, and then sold it. 

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Level 11

IRS doesn't have a policy of allowing a free bite of the Schedule D appetizer before moving on to the Schedule C dinner.  If his story is that he really considered it an investment opportunity and only decided later to make it a business, that's fine.  If you want to coach him to say something else, remember what Shakespeare didn't say (it was Walter Scott)

Oh what a tangled web we weave. When first we practice to deceive.

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Level 3

Thank you BobKamman for your response. What I am looking here is to find out if this could be reported on Schedule C or D? Honestly I am not sure about it. I am new to practice and did some research about and could not find a proper answer. 

The situation is what I wrote about above. I am not sure if I have report this on Schedule C or D? is it considered investment OR business OR Capital Asset/property?

Thank you. 

 

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Level 13

Sched C = ongoing business activity.

Capital Property = keeping it to operate, such as a rental.

Sched D = one and done, not intended to do again, not ongoing, and more like, Hey, I bought a house to fix up and rent out or live in, but got such a great offer, that I just had to Sell it and take that gain on it.

 

You told us this:  "This house was not his main residence or second home. It was purchased solely to make some profits."

Intent seems to be Sched C, then. The improvement costs add to basis as COGS.

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Highlighted
Level 11

Don't look here because the answer is within you.  Well, actually, within your client.  As others have pointed out, if it's a business, like selling Lamborghinis that may cost as much as a house, then it goes on Schedule C.  If it was an investment, because he knew the property would quickly increase in value, then it goes on Schedule D.  Putting it on Schedule C will likely increase what he owes, if there was a profit, because he will also have to pay self-employment tax.  Putting it on Schedule D, though, will mean his loss is limited to $3,000 instead of the full amount.  If he made money on this one, he might lose on the next -- the housing market has changed in some places, in the last couple weeks.  

In situations like this, you might ask him who did his return last year.  He may have been given an unfavorable answer by that preparer, and is hoping for a better one from you.  There is no law that requires you to prepare every return that walks in the door, but there are laws that require you to prepare a return that is true, correct and complete.   

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