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Flipping homes Inventory

Hello

I was flipping homes under my LLC,

Houses I sold the same year the income and expences were reported on sch.C 

Houses i did not sell were reported as an Inventory and cary over fir next year's Inventory but expenses related to that house not sold were reported on schC the same year.

Next year, i statred with inventory of that house not sold from last year.

I did renovation but did not sell the house but i had to pay taxes on my inventory as a income. Is this correct.? 

Every year i carry over the inventory its treated as income....i dont think it is correc? 

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1 Reply
AmyC
Employee Tax Expert

Flipping homes Inventory

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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