Built personal home through our construction company

[matt_wheelerq72]

In 2022 and 2023, We built our personal home. I have my own licensed construction company LLC here in SC.  My wife and I got a construction loan to build our personal home and all payments from the loan were paid directly to my company. The whole job was licensed and permitted through my company. We paid the construction loan interest every month with our personal account. Most of the materials and payments were made through my company accounts but we had to use some of our personal accounts/credit cards to continue due to funding deficits. We then wrote company checks to ourselves to reimburse us when the funds became available. During the build, we were strapped for time, and had to move homes several times so a lot of receipts were misplaced. And we didnt have time to fully account all spending. So each year, we did our best to deduct the proper amount of material expenses. But now that we are moved in, we have deep searched and now have accurate numbers. We want to ammend our taxes for 2022 and 2023 because the numbers are pretty different and we well overpaid taxes each year. Upon reasearching it seems that writing off personal home building materials isnt allowed. I couldnt find info with building personal home through your own company and funding goes to company. My question is how do I proceed:

1- account for construction loan funds as Gross revenue through my company and claim all materials perchased to complete the job as material deductions?

2- Do not claim the construction loan funds as gross revenue since it was a personal loan going towards a personal project and do NOT claim materials as a deduction?

3‐ Account for construction loan funds as Gross revenue through my company and am NOT able to claim materials purchased as a deduction?

Obviously #3 would be a major issue as I would be liable for taxes on roughly $500k income. Am very scared of option 3 for obvious reasons. Thank you for your time and help

[zomboo]

I am not a tax expert, and I properly don't know what I'm talking about, but want to offer my opinion since you have not received a response from the community. I am assuming that the LLC and your personal finances/taxes are kept separately and that the material receipts you have recently found are for the items purchased with personal funds.

In my opinion, the LLC gross revenue would include all the direct construction loan payments and the LLC material deductions would include all material purchased through the company accounts plus the reimbursement checks that the company paid to you. These checks are not income, they offset your expense. You cannot deduct the cost of the material you purchased with personal funds on your personal taxes but should keep the purchase records to show these payments to you are not part of your personal income. You can, of course, deduct the interest paid on the construction loan on schedule A of your personal taxes (subject to limits).

The basis in your new home is the total of the funds borrowed on the construction loan which covers all the cost of labor, materials, and permits. If your reimbursement was less than your expense, the difference should have been added to your home’s basis and deducted from LLC income on your personal taxes. If your reimbursement was more than your expense, the difference should have been subtracted from your home’s basis and your LLC income should have been increased by that amount on your personal taxes.

With the discovery of additional personal construction material receipts, your personal taxes for 2022 and 2023 should be amended to reflect a reduction of taxable LLC income by the difference between the total amount of personal funds spent on construction material and the total amount reimbursed.

Bottom Line: I vote for option 1.

[AmeliesUncle]

#2 is the correct answer.

As a side note, loans are never reported as income.