LLC for House Flipping

[mtourne]

I started a LLC May 26, 2020, to flip houses. I purchased my first house July 2, 2020.  After the purchase I paid to have the house remodeled and the work was complete in March of 2021.  It is now listed for sale but has not sold yet.  The only income my LLC earned in 2020 was $265 interest income on a business savings account.  Do I have to file anything on my 2020 taxes relevant to the house (Expenses, builders insurance costs, etc.) or can I wait till the year in which the house is sold to file.  Also, can I file the the $265 interest income from the LLC savings account as just personal  interest income rather than listing it as a business income on my 2020 taxes?

Thanks

[AmyC]

No, you don't have to file, yes you can wait until sold and I would claim if sole proprietor. Here are the answers explained:

.Everything you spend on the flip goes into the basis of the house for when you sell. Your LLC/ or you, may want to report the things that don't go into the basis, like property tax. If you are a sole proprietor, your business tax is on sch C and is a part of your return. If you have more people involved, the answers can change. You would not want to report all of the interest, if you have partners that should also be carrying the tax burden.

The IRS will match up the EIN on the 1099-int. If they don't see it, they will bill. If it is your social, no problem. A long way around would be to make it nominee to you and then you report it. If you are sole proprietor, you can also just claim it. If the IRS sends a letter asking, tell them you put it on your taxes and show them. The bottom line is to prove it was taxed.

If you hold the property for one year or longer, it is a long term investment, you avoid the dealer terminology and qualify for capital gains tax rate instead of being taxed as ordinary business income on sch C.

[Rick19744 · Accepted solution]

I'm not sure I agree with @AmyC .  

Based on the limited facts, you indicate that you started an LLC to flip houses.  This to me indicates that this is a trade or business; a dealer in real estate.

If that in fact is the case, your houses do not qualify as a capital asset and in fact become inventory.

That means, upon sale, the house will generate ordinary income regardless of how long you held it.