I am flipping a property to sale or rent. If the house doesn't sale this year, it will be for rent. Can I file all of my expenses and everything for this 2017?

[Flipper1]

I am flipping a property to sale or rent. If the house doesn't sale this year, it will be for rent. Can I file all of my expenses and everything for this 2017? or do I have to wait? What can I file this year and what can I not file this year?

[Hal_Al · Accepted solution]

It’s complicated, but the simple answer is NO. You cannot deduct anything this year.

That assumes your are an investor and not in the business of flipping houses. For an investment house, all your capital costs  go to your “cost basis”. When you sell the property, you capital gain (or loss) will be the difference  between the sale price and your cost basis (less expenses of sale).

If you end up renting the property, your cost basis determines your depreciable basis.

Until you put it to use as rental property, or sell it, you have an investment property. The carrying costs (e.g. insurance & utilities) of investment property are deductible as investment expenses, but are subject to being a misc. itemized deduction also subject to the 2% of AGI threshold (this is no longer allowed under the new 2018 tax law).  Real estate (property) tax may be deducted on schedule  A, under taxes, without regard to the 2% rule.

Alternatively, taxpayers can elect to capitalize (add it to your cost basis)  the carrying costs of unimproved and nonproductive real property, real property under development or construction and personal property before its installation or use (Regs. Sec. 1.266-1(b)(1)).  The election is made with the tax return by its due date, including extension, by attaching a statement. You cannot wait until you sell the property, but must make that election each year. Attach the statement to the return and write “Filed pursuant to section 301.9100-2” on the statement. 

Mortgage interest is only deductible to the extent of other investment income and not subject to the 2% of AGI rule,  but can be capitalized. 

[Flipper1]

What can I file this year? Can I file mileage?

[Flipper1]

Can I file security camera's?

[Hal_Al]

Q. Can I file mileage?
A.  No. That goes to the cost of fixing up the property.

Q. Can I file security camera's?
A. That's a little fuzzzier. Yes, if you rented them (it's just another utility cost). No, if you purchased them and they go with the house.

Q.What can I file this year?
A. "Carrying costs", described above

[Flipper1]

Hate to ask a thousand questions. Can you post a link from the IRS website where I can find information in regards to my situation?

[Hal_Al]

No. But just "Google"  house flipping and taxes (or similar wording). There are plenty of tax expert sites with detailed write-ups on the subject.

[Flipper1]

People have a lot of different versions and at this point I can not determine who's telling the truth and who's not if there's no real proof from the IRS. At the end of day, if something goes wrong and I end up owing the IRS, I am sure that person who mislead me isn't going to pay on my behalf or pay my fine.

[Hal_Al]

You have an investment (unless you're in the flipping business). IRS Publication 550 is for Investment Income and
Expenses, including sales of investments. <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p550.pdf">https://www.irs.gov/pub/irs-pdf/p550.pdf</a>

[Flipper1]

Whats the difference between investor and flipping business?

[Hal_Al]

The profit on the sale is no longer a capital gain. It's business profit and taxed as ordinary income. In addition you pay self employment tax (social security & medicare). Your fix up expenses are still NOT DEDUCTIBLE  until you sell the house. But general business expenses (like mileage) would be deductible. If you sell flip one house and quit; you're an investor. Anything else and it's most likely you're in business, but it depends on all the details.
Again,  just "Google"  house flipping and taxes. There are plenty of tax expert sites with detailed write-ups on the business vs. investment aspect

[Flipper1]

Do the same stipulations apply if I was a licensed real estate agent?

[Hal_Al]

Yes. The main difference, in case of an audit,  would be that the IRS might tilt towards self employment.