Since you sold the property in 2019, you will report all transactions related to the property (direct and indirect) in 2019, even though some of the costs were expended in 2018. You can use the Cost of Goods Sold / Inventory account to accumulate these costs.
The only deductions you should have taken in 2018 were general business expenses - those NOT related to the property. You take general business expenses in the year you made the expenditure. See examples below.
All costs related to the property should be put in the Inventory Account which includes Cost of Goods Sold. The purchase price paid for the property plus all of the following accumulate in the COGS - Inventory account. Once you sell the property, record the income (sales price received) and then TurboTax will offset the related expenses/COGS for the property which will leave net gain or loss reported on Schedule C. Your ending inventory for that property should be 0 in the year of the sale.
House flipping is obviously a costly business, with numerous expenses incurred along the way. If you are operating as a business you may think you can find tax deductions to lower your tax obligation. Unfortunately, most of the home flipping expenses are not immediately tax deductible. Instead, they must be capitalized into (i.e. added to) the basis (the original value) of the residence. Capitalized costs that make of the COGS include:
- The cost of the home itself
- Direct materials
- Direct labor
- Utilities
- Rent
- Indirect labor
- Equipment depreciation
- Insurance
- Production period interest
- Real estate taxes allocable to each project
You then get a tax benefit from these expenses when you sell the property as the taxable gain is reduced by the amount of basis in property (COGS account). All of the above will make up your COGS on your tax return. It’s important to know what expenses you can deduct when flipping a house. This will give you a better idea of how much your taxable income will be, so you can have money set aside to pay your taxes. This, in turn, affects your budget on your next flip.
Some expenses you can deduct when flipping a house include:
- Capital expenditures (expenses related to buying and renovating a house with the intention to flip). These are deducted after you flip the property. See above.
- Vehicle expenses, which can include gas and repairs or a standard mileage rate.
- Office expenses, including rent, utilities, and office supplies like printer ink and paper
- Building permits
- Mortgage interest
The other ''supplies'' category in Section ll refers to the general business supplies, those not specific to the property in question. If it is an expense related to the property, it goes to COGS/Inventory account and is deducted upon the sale of the property and if it is a general business supply, it will go to the general supplies category in Section ll of your Schedule C and is deducted in the year the expenditure was made.
@ACtaxpayer
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