1. Maybe. Inventory can be taxed under some circumstances. Unsold homes are inventory. Your accounting method dictates the tax treatment. Builders may choose between cash basis accounting (recognizing income and expenses when cash is exchanged) and accrual accounting (recognizing income and expenses when they are earned or incurred). This choice can impact how inventory is treated for tax purposes.
Federal and state laws also vary on how the inventory is treated along with your accounting method.
You can look at your sch C and see which method of accounting is marked.
2. Inventory can be valued at what you put into (actual $ you spent) or the resale value. If you are using the resale value, that could be affecting your inventory value and taxes.
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