Deferring Business Losses Until Next Year – Unique Real Estate Situation

[Hobbyist]

I am a licensed real estate agent, but my primary source of income is flipping homes. I purchase them, repair/remodel, then sell them for profit. I am using Turbotax Business download version.

I have a unique situation this year. I am attempting to keep my Adjusted Gross Income (AGI) as high as possible this year so that I can qualify to refinance a couple of my properties. Unfortunately, when I take some of the write-offs that are legitimately due to me such as the Mileage Expense and the Home Office, it drops my AGI below a level that lenders require for the refinance.

I would like to keep my AGI high for this year, even if it requires me to pay additional taxes. I just don’t want to lose out on some of the deductions that I would have to omit in order to keep it that high. This is several thousand dollars in taxes.

So what can I defer until next year? I chose to depreciate some of my business assets (computers), rather than take a Section 179 deduction.

I have one “flip” that took a significant loss, and would remedy the situation in one swoop if I could defer it until 2021 taxes.

The one “flip” was actually a 50% venture with another partner, and I was thinking maybe there was some way to let him claim the entire loss, but I believe we are required to claim 50/50. That would probably solve the problem as well if he could eat the whole thing. The loans are taken out against my personal, so my partners income doesn’t matter.

I have an S-Corp as well, but the flip wasn’t officially done under that business, though it is a similar business.  

Or I could try and carry over the mileage and home office expense, but I don’t think I’m allowed to because I did have a decent net profit this year.

Please help.

[MinhT1]

First, you cannot defer some of this year's expenses until next year. You would not be able to claim them next year.

Second, the IRS requires that you claim all deductible expenses and not omit some expenses to inflate your income.

[Opus 17]

No one here can give you the kind of legal advice you seem to require.  As a general rule, cash basis taxpayers must report income when it is actually realized.  Also as a general rule, failing to take legitimate deductions to show a higher income for a loan application could be considered loan fraud by the lender.  I don't know of any obvious way to defer the loss on the flip home.  However, you should obtain qualified professional advice. 

[Hobbyist]

The answer was to write the loss on the flipped house off as a capital loss, rather than a loss against regular self-employed income, and deduct it $3,000 per year or against other investment gains. 

Under normal circumstances, if you were to take a loss, it would be better to write off the entire thing in one year, but not my situation. 

[Hobbyist]

MinthT1, Your second part is not true. The IRS does not care if you don't claim all the deductions you are entitled to. I don't see why they would. You are paying more in taxes, and it would raise less of a red flag. 

[Hal_Al]

If you are in the housie flipping business, generally, you cannot claim a capital loss on one of your flips.  It is a regular business loss and reduces your business profit and your AGI.

As others have said, you need professional accounting/legal  help.  The fact that you are using TT Business (not Home & Business)  indicates that you file as something other than a sole proprietorship (schedule C).