Unfortunately I have experienced a loss on my real estate flip. I purchased a home 8 months ago at purchase price $95,000 and put $55,000 into it. After months of sitting there it came about I had to sell at a much lower price than anticipated. Sold at $127,000 leaving my loss at -$23,000. I had only owned home for 8 months and I am aware of short term capital gains/loss. Can i write the entire 23,000 loss off on my personal tax return? Also do I need to make clear in tax preperation of the amount $55,000 that went into home improvements? Any help would be greatly appreciated.
When you are flipping property, your income is ordinary income not capital gains. Your loss is not a short term capital loss, it is a business loss and could be fully “deducted” on your 1040 for the tax year in which the sale occurred. If you sold the property in 2007, then report the loss on your 2007 tax return.
Go to the IRS website and download Schedule C (1040) and its instructions. Fill out the form, show all your acquisition costs, rehab costs, holding costs as cost of goods sold. Subtract your net sale proceeds and your selling costs to get your taxable income or loss. Report that amount on page one of your 1040 in accordance with the Schedule C instructions.
don’t forget mileage (a big one) to and from the jobsite, hardware store, paint store. meals, if any, office supplies, postage, advertising to sell the place, money you paid your kids to haul trash, and the 15 millimeter right angle bobble wrench you needed to get the furnace door off.
Thanks. I appreciate all the advice and now feel somewhat better that I can deduct this loss on my 2007 return(even though it did not feel good losing that amount of money). I want to tell everyone that maybe reading this it was extremely great learning experience and can honestly say I would do it again armed with the knowledge now. Thanks all for the help and advice.
A few questions after looking at 1040 Schedule C form is asks for business name, do I just put in my name and under principal business or profession put that as Real Estate Investments? Are you an CPA in the state of Georgia?