@rubylove wrote:
Thank you! I did purchase and truly flip another property under my llc. Do I need a schedule c with my personal taxes to report the income and deductions? It was a one off, but in name of LLC, does that mean will be taxed as a business? Please note I also flipped one house the year before, but under my personal name. Am I considered "a flipper?" I haven't filed taxes for that year yet and need to find an accountant, but truly has a loss.
If you are an "ongoing trade or business" then you report on schedule C. If this is a hobby, you report on schedule D (capital gains).
Here is a quick summary of the differences
| Ongoing trade or business |
Hobby |
| Net profit is subject to income tax and self-employment tax |
Capital gains from the sale are subject to capital gains tax |
| You can deduct carrying expenses (insurance, utilities) |
You can't deduct carrying expenses |
| Property tax is a business expense |
Property tax is a schedule A itemized deduction subject to the $10,000 SALT cap |
| Mortgage interest is a business expense |
You can deduct mortgage interest as a schedule A itemized deduction on your main home (where you live) and one second home, up to an aggregate limit of $750,000 principal balance on all your mortgages |
| Business income and expense is reported on schedule C |
Many expenses are ignored. The cost of capital improvements is added to your cost basis, and your capital gain is calculated on schedule D. |
Your taxes are potentially higher as a business because of self-employment tax, but more of your expenses are deductible, and the SE tax gives you additional credits in the social security system.
If you classify a hobby as a business (becase you get more deductions) or if you classify a business as a hobby (to avoid self-employment tax) and then get audited, the IRS can reverse either decision. For a business they want to see evidence of "ongoing" business activity.
https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax...
You are a flipper if you act like one.
