How do I report the sale of a flip house?

[Carl]

It gets reported in the Infvestments section in Stocks, Bonds, Mutual Funds, Other. When asked, indicate that you do "not" have a 1099-B.

[GeorgeM777 · Accepted solution]

It depends on whether you are "in the business" of flipping houses for a profit or if this "flip of a house" was just an investment property.  If you are in a business of flipping houses, then all aspects of the sale will be reported on form Schedule C, Profit or Loss From Business.  On a Schedule C, you will report the gross income as your sales price and the basis will be your cost.  A net profit from a business reported on Schedule C is subject to self-employment taxes (for example Social Security and Medicare taxes) as well as the applicable income tax.

In contrast to Schedule C, if the house was an investment property, then its sale would be reported on Schedule D.  In this regard, here are the steps to follow when entering the sale into TurboTax:

1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages & Income” ("Personal Income" in TurboTax Home & Business)
3. Next click on “I’ll choose what I work on” (jump to full list)
4. Scroll down the screen until to come to the section “Investment Income”
5. Choose “Stocks, Mutual Funds, Bonds, Other” and select “start’ (or “update” is you have already worked on this section) (see Screenshot #1)
6. The first screen will ask if you sold any investments during the current tax year (This includes any sale of real property held as an investment property so answer “yes” to this question)
7. Since you did not receive a 1099-B, answer “no” to the 1099-B question
8. Select - everything else
9. Some basic information:
   1. Description –  Usually the address of the property sold
   2. Date Sold – Date you sold the property
   3. Sales Proceeds – Net proceeds from the sale 
10. Tell us how you acquired the property - purchased
11. Purchase information - This is where you will enter your cost plus the capital improvement costs.
12. Enter the date acquired.

[anotherdude]

WHERE. Turbo tax must have changed this year because the first part for self-employment income doesn't give you any option to select as business inventory sold for flipping homes as a business. I keep searching and the choices its giving me are very confusing. Uh. You don't get anything it mentions and it doesn't let you just skip to business gross received / cost basis I'm about to quit this and just goto my tax guy that screwed up my taxes last year if I spend another hour trying to figure this out.

[anotherdude]

When you search how to add real estate inventory sold / flipped in the help QA area there is nothing on this except Capital assets which they aren't. If its a business its inventory. I can't tell you how confused I am. I swear last year it was easier finding this and which self-employment income categories. It doesn't really give an option or its really hiding. Usually you can search for an answer and click a link to directly goto a section but I can't figure out where my tax man put it in his even though its still Box 1 - gross income it doesn't show/state this on this website for business inventory sold (homes). I wish this was clarified much more that would lead into cost basis. I currently just added them as other self-employment income (cash/checks which they aren't). Someone help please with a clear answer and possibly some screenshots of where I am inputting the homes sold as inventory. If there is a spot I don't understand why the help search area isn't picking up on these keywords for customers online. I know this isn't common but this is a normal business.

[PattiF]

From @DawnC:

The various items that make up the Cost of Goods Sold  (business inventory of homes) are shown below.

All costs related to the property should be put in the Inventory Account which includes the 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 up 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 the 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. 

[anotherdude]

You completely avoided my more important question and obvious need: where/what part on the turbotax online do I input house inventory sold? Is it just "other self-employment income" on first question and I just put in full address? I was reading somewhere else that it goes into that. I just can't find it.

I know about all the expenses and all the fun in double the taxes I pay because I understand there is no depreciation going on. If you could send me a screenshot of the page you would add houses as inventory sold in the business section. I only see expenses.

[DawnC]

You need to add the Inventory group to your expenses in TurboTax Self-Employed.   To do that, go to your income and expenses page and open the expenses section.   Then scroll down and click on Add more expenses.    Then scroll down to the Less Common section.   Scroll through the list (there are a few pages - 17 in the example below) until you find Inventory.   Put a checkmark in the box and then select Continue.   That will add Inventory (Cost of Goods Sold) to your expense list.   Once you have it, you can refer to the information above or in the link below to use it for house flipping tax reporting.  

Here is a link to a discussion on house flipping if you are interested.   @anotherdude 

[anotherdude]

MOST EXCELLENT! thanks I will do exactly that and thanks for screen shot. I just wish when you searched stuff in search bar it would offer what you just presented because I was searching every keyword for home inventory/flipping ex. and they were all for capital assets/investments and non real estate business flipping as a business (selling inventory - homes). I swear last year the interface or even answers came back different. Turbotax needs to add that AIcpp or whatever it is but it might not even be that smart since it just takes information already off the internet. I searched these answers on google too for turbo tax but got similar general answers not specific to actually actively doing taxes on turbo tax. I should have to spend 2 hours SEARCHING just to add my business and two properties. That's my entire tax return. Uh. THANKS AGAIN!

[anotherdude]

Oh man. I use to enjoy doing my own taxes on turbotax for over 15 years but I bombed accounting throughout college and even reading your link I still have no clue how to properly use turbotax software flipping houses. And its a business I do understand its inventory doing 3-4 homes a year but the tax man did it last year for me (unfortunately having to audit him and fix them twice). 99% of my supplies are directly used for home remodel flips but I do have carrying costs. I'm just turning this stupid software off and bring my return to the guy and making sure he does my interest statements right this year. He's $300 and this is going to cost me $300 once its ready to file. good grief but thanks for your reply. I do wish there was step by step. Flipping business in software seems SO tricky and not straight forward unlike a normal business I've had in the past. ciao my turbotax friends.