Distinguishing Real Estate Agent Sales from House Flipping Business on Schedule C

[RW126]

My wife is a real estate agent and her business is captured on schedule C on our married filing joint return.  This year we entered into the house flipping business and while we are taking a loss on this first deal we intend to do one or two more in 2023.  Does the house flipping business get captured in a separate schedule C from her ongoing real estate sales business or does it all end up on a single form?  How will Turbotax guide me through the interview panels and distinguish between the two activities?  Would she use a single business code in box B?

[Kelly Thomas C]

It depends on how good your expense tracking is. For some real estate agents/flippers I prefer to have these business activities on two separate Schedule Cs...especially if both husband and wife are involved. Each managers/operates one Schedule C. For others, we simply put them on one Schedule C. For tax purposes, the combined revenue and combined expenses equal the combined net income which is the amount of self employment tax you will pay. It is best to try to make sure one Schedule C does not pay a large self employment tax and the other shows a loss. Try to get a good balance between the two.

I hope this is helpful to you.

Kelly C

CPA

[RW126]

Thanks, that is helpful.  So when Turbotax asks if I have another business to add, that is the mechanism by which two schedule Cs will be generated?  Expenses are well tracked and distinctly separate so entering the data in this manner would be straight forward.  However, for this year our first flip showed room for improvement as it ended up in a loss while her agent business was more profitable and in line with past years.  The results are what they are so I don't see a means to balance the two so based on your last insight it sounds like we should go with a combined schedule C (at least for this year) so as not to create such a disparity between the two with regard to the self-employment tax?

[Kelly Thomas C]

To balance them out since you both provide services to each business line, you could pay one business for the services provided by the other, in that way you accurately reflect the relationship between the two. Have one LLC issue a 1099 to ther other. Obviously, services would need to have been provided to explain the business expense of the one, and the business revenue earned by the other.

Kelly C.

CPA