Sale of Home

[YLC]

My clients purchased a house in 2020 with the intention of flipping the property to make money.  They gave up a year later and sold it for a loss and they did not receive a 1099-s.  The loss is not allowed, correct?  And do I have to report it if they did not receive a 1099-s?

[sjrcpa]

Did they live in the house? Did someone?

Why do you think the loss is not allowed?

Don't be so sure they didn't get a 1099-S.

All income is reportable whether or not you get a 1099 for it.

[abctax55]

I'm curious *where* real estate has gone down in the last three years?

[MICHAELMARS]

Sounds like a sale of investment property if they never lived there. 

[YLC]

When someone buys a crap hole building that was not able to be insured, because it was in such disrepair, that's how!

[YLC]

A squatter lived there during covid and didn't pay rent.  And I thought I read that if it wasn't rental property then a loss is not deductible?  If I am wrong, then it's great for my clients.  I use 8949 correct?

[BobKamman]

Was there no 1099-S because the deal was done with a quitclaim deed to a nephew with a discount for "gift of equity" ?  

[YLC]

There was a quit claim but it was sold to the squatter, of all people!

[Terry53029]

You never answered Susan's questions, but if your client never lived in it you would treat it as an investment property report sale on schedule D. (no matter you receive a 1099S or not). 

[Helpemout]

I cannot sign into Pro Series Basic.. When I do get through I get Pro Series Proffessional

[Accountant-Man]

If you are a tax professional, do you report only the income shown on 1099s, or do you report all of your income?

[YLC]

No, I do not only report income if shown on a 1099, I report all income.  In this case, this sale will not result in a gain, it will result in a loss.  I've been asking questions because they say they did not buy this property for investment purposes, but there really isn't any other way to report it.

Thanks everyone for your replies.

[BobKamman]

@YLC  It depends on the meaning of "investment."  They didn't buy it as a rental, but they didn't buy it for personal use, either.  Apparently they bought it as inventory for their house-flipping store, which might help if the loss was more than $3,000 and they want to put it on Schedule C.  

[sjrcpa]

Are they in the business of flipping? Or was this a one time venture/flop?

[YLC]

A one-time venture!

[sjrcpa · Accepted solution]

I'd call it Schedule D/8949 investment loss.

[BobKamman]

But if they had made money, would it have been the first of many?

[sjrcpa]

Even if, there is precedence that the first one, or two or three, might be investment/capital gain before this becomes a business on the 5th or 6th,

[YLC]

No, they really didn't know what they were doing.  They focused on how cheap the property was, and they thought they could fix it up and make money, but then found out it was in such bad shape it could not be insured, so they put some money into it and sold it to the squatter.  This was in 2021 and the only time they did it.  They haven't filed taxes in three years, so I am preparing all three years now.

[YLC]

I just asked them again, and they said their intent was to fix it up and live there, it was a duplex.  After purchase they found they could not insure it because it was in such bad shape.  So they repaired the foundation, furnace, and plumbing, then sold it for a loss.

[sjrcpa]

First "My clients purchased a house in 2020 with the intention of flipping the property to make money"

Now "their intent was to fix it up and live there"?

[YLC]

Communicating with these people is liking communicating with rocks, I had to pry it out of them practically.  So yes, 1st they said investment, then they intended to live there.  Case closed, and thank you

[BobKamman]

Don't close the case just when it gets interesting.  Were they going to live in both units of the duplex?  If not, isn't half the loss deductible as an investment property?  

[YLC]

So, the clients just told me that they only bought the one unit, that they intended to live in.  Thanks for the additional question, because they had not made that clear before.