Writing off LLC Costs on Home Flipped to Self

[rubylove]

I purchased a home in the name of my LLC with a hard money fix and flip loan with the intentions of reselling.  My sole member LLC incurred a great deal of expenses in renovations and carrying costs and then I decided to live in the house and keep it as primary residence.  I refinanced the hard money loan with a personal mortgage, transferring ownership from the LLC to myself in the process.  Can I deduct my expenses and carrying costs from the LLC related to this property when filing my schedule C on my taxes?  I had another house flip and loan in action under the LLC during the same timeframe that I will be reporting income and deductions for.  Thanks in advance!

[Mike9241]

I would think this is property converted to personal use so expenses are not deductible. capital expenditures would add to your basis. 

[NCperson]

@rubylove if it is not as @Mike9241 suggests, then everyone in America would buy their homes through LLCs so they could write off the improvement costs...... 

[TomD8]

@rubylove wrote:  "I decided to live in the house and keep it as primary residence." 

In that case nothing related to this property goes to Schedule C.

[Critter-3]

Agreed. Unless the single member LLC is incorporated the house purchase & improvement is consider done by you and is treated that way.  You took a long route but basically you bought yourself a home and improved it prior to living in it.  So it is treated as a personal residence purchase not a business "flip" to yourself. 

[rubylove]

Appreciate everyone's response, makes sense! However, just thinking about fact I did renovations, carrying costs, insurance ,etc in 2021 and refinance to myself until just now in 2022.  I'm working off an extension to file and wouldn't have known I was keeping for self had I filed on time. That being said, are ANY of those operating costs write offs for the LLC for the year prior? Hard money loan fees, etc? Thank you! 

[NCperson]

can anything be written off? ...just the usual....(assuming you itemize)

• interest expense, amortization of points.
• real estate taxes 

as stated by @Critter-3 , you just went the long way around to purchase a personal residence...

[Opus 17]

A single member LLC or sole proprietorship is a disregarded entity.  You and the LLC are one taxpayer.  You bought a personal home, and you paid utilities and so on for a few months while you fixed it up, then you moved in.  Nothing about buying and owning your personal home is deductible on schedule C. 

[rubylove]

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. 

[Critter-3]

If you registered the LLC with the state and got it an EIN for it then you have a flipping business which needs to be reported on a Sch C.   If you just wanted to flip one investment property per tax year and not make this a business then this should all be done thru your SS# and is reported on a Sch D.   Please talk to a local tax pro to get educated on what you did and what you should be doing. 

[Opus 17]

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@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. 

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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.