"So you are saying it should go onto the Schedule C with a Passive Activity Loss carryforward?"

Stop thinking of Expenditure and Expense as synonyms. Expenditure is cash flows, but not also by definition is that an Expense. When you put money into your retirement account, that is not Expense. That is Investment.

There is nothing to report. No gain. No loss. There is no activity until it sells. I pointed out, think of this as inventory. If they want to be able to sell it, they first have to create it. Whatever time that takes and the associated costs are invested costs, in anticipation of the sale. There is no operation, so there is no activity to report. They are busy, but not generating business on that property. A landlord generates business on property. Think of the difference between Taxi and Car Sales.

Only when it sells, is that the conclusion of the process, and now you have all the information needed to report those details. Even if they are working on multiple properties at the same time, all they are doing is sinking costs into each project. The project is an inventory item, and will be available to be sold. Sales date is the reporting event. Until then, it's accumulating invested value into each project.

Remember: Expense and income are matched, in that the expense it takes to generate that income is what is being computed. Until it sells, there is no income, so there is nothing to report about the physical property being computed. That's why it is not expense. Not expense while being worked on and not expense when sold. It is Cost of Goods Sold, not expense.

I teach this. All new windows = improvement to the asset. Snow removal or electricity = expense = Poof! Immediately gone as you spend the money.

Hope that helps.

You might find some mentoring on this.