My business is buying houses, remodel them and rent them. Should I put my rentals on Sch E or Sch C? If is on Sch E, my rental properties will be my inventory?

[Lisa-W-]

My business is buying houses, remodel them and then either rent them or sell them, which will depend on the real estate market. Should I put my rentals on Sch E or Sch C? If is on Sch E, my rental properties will be my inventory?

[LeeM · Accepted solution]

The buying of houses and remodeling them would be on your Schedule C so you can deduct those expenses. You will report the "flip" on Schedule C. Sales price will be your gross income (general income in TurboTax) and basis will be your cost of goods sold. This income will be subject not only to income taxes at ordinary income tax rates, but also self-employment taxes. 

At the end of the remodel, you will have a new cost basis (what you paid + major expenses you put in). 

You would then use Schedule E for the actual rental income and expenses.

Your rental properties would be assets for your Schedule E and depreciated accordingly.

On Schedule C, your rental properties would be inventory until they are completed and transferred to rentals.

[Lisa-W-]

Thanks a lot. You saved me SO much income tax!!