I am going to begin “seriously” getting into rehabbing homes, now.
This year I am going to do probably 3-6 transactions (fixing up, and selling homes for a profit).
Next year I’ll shoot for double or triple that.
I will be using my own funds in combination with bank money (I have no real need for hard money loans since I have great income & assets already, and I can get far better terms).
This is a completely seperate business than my existing businesses,including my collection of rentals, and I plan on using one of my extra / unused single-member LLCs (a pass through entity) and reporting any earnings on a seperate Schedule C.
But I have a couple questions.
→ To confirm, this business SHOULD be reported on a seperate Schedule C (and NOT a schedule E) right?
And say I purchase $500k worth of homes in 4 transactions before the end of 2012, I have $100k in fixup and holding costs (factor in all other business and whatever expenses too) - and I sell them all for $750k. In that scenario, I clear $150k.
→ Do I report $500k in inventory or COGS, $750k in sales, and deduct the $100k in expenses like I normally would any other business?
I am a tad bit confused, as I understand that real estate agents do not report their total sales of their homes - which could easily be well into the millions upon millions for an agent - but just report their commissions as income/sales and deduct expenses like normal. I also understand they are mediators / salesman and not actually home buyers and sellers.
I am going to logically assume the answer is “YES” to both of my questions above, but I would like to here from some experienced rehabbers or tax experts out there to confirm that. =)