We rehabbed a SF house last year and sold it for nice profit. I have read IRS Publ 544, but am still not certain where we put this income on the 1040. It appears that the IRS wants it to be “Ordinary Income,” since we never rented the house out and we only held onto it for 4 months. Does anyone know for sure ? And if so, what form do we enter the profit on ?
Also, it looks like we will be paying SE Tax on this. Is there a way to avoid this huge bite ?
THanks
Herb in Des Moines (Wa.)
Schedule C and Schedule SE will take care of your tax reporting requirements.
Congratulations on completing your first rehab successfully. If you plan to continue rehabbing, suggest you consider an S-Corporation so you can manage the self-employment income taxes somewhat.
Thanks for the advice & encouragement Dave. WIll be talking to a professional about which entity to use for what…have a few more items to go over in my notes B$ I call.
HERB
Make sure you complete the Sch C in detail, yes, a profit is a profit, and it will be taxed. That’s business!
Congrats on making a profit! Too bad, it’s not as much, after the IRS takes their share!
Ahhhhh Free Enterprise!!!
Good Luck!
I had just posted a similar question on the Rehabbing/Landlording forum. I started to do Schedule C, but then 2nd guessed myself that that wasn’t the correct route…I guess I will go back and take another look at it. I just used form 4797 (Sale of Business Property). Either way, the Capital Gains was definitely more than expected!
Thanks for the info!
-nt
See my answer at http://www.reiclub.com/forums/index.php?board=39;action=display;threadid=3958. It applies to you and may save you from paying social security/self-employment tax on this deal, though you still do owe the income tax.
John Hyre