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How do you post a one-time "house flip" long-term capital gain in Proseries

davetodd11
Level 3

I have a client who went in with 2 other people to purchase a house for a one-time flip (not a "Dealer").  The intent was to put the house in an LLC and have a formal partnership, but the paperwork was never done.  All 3 partners actively/materially participated in the house repairs.  The house was sold more than 12 months after purchase (long-term gain), and the profit was split evenly 3 ways. 

The home purchase and sale were solely in one of the informal partners' name, so no documentation actually exists showing my client as having received a capital gain.  Because of that, my thought was that the money my client put in worked out to be an interest-free loan, and his profit was actually self-employment income (paid for his construction services), to be reported on Schedule C. The client is retired, and does not do construction by trade.

I'm seeing from some of the other posts in this forum that this gain can be reported in Schedule D, since there is no intent to keep flipping houses, but I don't see where to post that in ProSeries or what form/worksheet I would post it to in order to feed over into the Schedule D.  I want to run both the self-employment and capital gains scenarios in order to definitively determine which would provide the best outcome for my client.

Can someone tell me where to actually post the gained amount to get it into the Schedule D for comparison?

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davetodd11
Level 3

dkh,

Thanks for the quick response.  The results I get from entering it in this way did bring it into the Sch D, but I'm astonished at the difference.  The profit amount was $40,544 and the taxes owed went down from $8,187 to $783.  I was expecting a possible reduction in the tax liability, but nothing anywhere close to this.  Given the details I've provided, does such a drastic reduction sound right?

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dkh
Level 11

Choose the 1099B Worksheet then scroll down to the Quick Entry Table  - there is where you can input your information for doing your comparison

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davetodd11
Level 3

dkh,

Thanks for the quick response.  The results I get from entering it in this way did bring it into the Sch D, but I'm astonished at the difference.  The profit amount was $40,544 and the taxes owed went down from $8,187 to $783.  I was expecting a possible reduction in the tax liability, but nothing anywhere close to this.  Given the details I've provided, does such a drastic reduction sound right?

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BobKamman
Level 14

Yes.  People with lower incomes pay little or nothing on long-term capital gains.  Often the state income tax, if one exists, is more than the federal.  

davetodd11
Level 3

Excellent.  Thanks Bob for the confirmation.  This was my first time dealing with this situation.

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sjrcpa
Level 15

Also, capital gains are not subject to SE tax while Schedule C income is.


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qbteachmt
Level 15

"but I'm astonished at the difference."

The other assumption is that your client has nearly no expenses related to that income, for purposes of using Sched C. Those types of costs would be Basis, if this was "his" investment project. Or, Expense, if this was his business. You described money as Loaned, but not what it was used for.

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