Home flipping income

[NorthWoody55]

I invested money in flipping a home I did not own. How do I report the income? I am 66 years old born in 1955. does this impact my social security?

[rjs]

It's not clear what the nature of your investment was. It sounds like you might have some sort of partnership, even if you didn't realize that you were forming a partnership. If so, the partnership has to file a Form 1065 partnership tax return and send you a Schedule K-1, which you enter in your personal tax return. You and the other partners may need to consult a tax professional to find out how to report the income properly.

[Mike9241]

do not delay in seeing a tax professional. if you were in a partnership or an S-corporation, that entity was required to file a tax return and issue the owners of the entity a K-1 so they could report the income on their personal tax returns.  that return is now late. penalties for late filing are about $200/month/owner so with just two owners the penalty is now about $1,600.  not only that but if you owe on your income tax return for 2020, that payment is now late. so there would also be penalties on your personal return of 5% for each month or fraction thereof for which you owe based on the amount owed.

[Hal_Al]

Most likely, you report it as a capital gain on form 8949 and Schedule D.  Alternatively, you report it as a  business profit on Schedule C.  

For more info, in making that determination, see a similar question at: https://ttlc.intuit.com/questions/3399983-tax-issues-regarding-flipping-of-a-house 

And references at:

https://www.hrblock.com/tax-center/income/real-estate/flipping-houses-taxes/

https://fitsmallbusiness.com/taxes-on-flipping-houses/  https://www.lendinghome.com/blog/how-to-maximize-house-flipping-tax-benefits/

Additional earned income, after reaching full retirement age, will not affect your SS benefits.  If you were born in 1955 your full retirement age is 66 and 2 months.  Investment income  does not affect your SS benefits, at any age.

 

[NorthWoody55]

I did not own the property.

Someone else owned the property and I supplied capital (loan) to buy materials needed for the renovation. I used personal cash and a second mortgage on my home to fund the renovation. So in reading the other links most of them talk about a property you own. I didn't own the property, I provided capital for improvements and made a profit when the owner sold the property.  

This is my first investment venture like this and I need to understand how the taxation works. I made the profit this year and I'm guessing I have to pay taxes of some sort when the property closes and I receive my payment.

[Hal_Al · Accepted solution]

The answer is still the same.  It depends on what activity you are doing as the taxation of "flipping" houses depends on how you are doing it.  Examples:

• If you invest in one house and the owner "flips" it for a profit; to you, it is a capital gain, on your investment.  If sold in one year or less, it would be a short term gain.  If sold after being held for more than one year it would be a long term capital gain and would be entitled to favorable capital gains rate treatment.
• If you invest in multiple houses and "flip" them for a profit (i.e. you are actively involved in fixing up houses to sell at a profit) you may be engaged in a business.  Your business would probably be considered a partnership and would file a partnership return (form 1065).  The partnership would issue Schedule K-1 to each partner to report his/her share of the profit on their personal tax return (form 1040).
• If you invest in  one or more houses and  do not actively participate in the running of the business, then you still only have  investments and would report the gain or loss as a short or long term capital gain, depending on when the gain or loss was realized. 
• If you are only loaning money (you get your money back regardless of whether the owner makes money or not) and did not participate in the business, the profit should be reported as interest income. You were not at risk. 

As indicated at the other links, the line between business and investment can be fuzzy.  Keep good records, in case of an IRS inquiry.