Flipping Properties

[MDFTAX]

Hello Community!

My new client purchases properties with another friend, renovates them and sells them. They each share 50% of the expenses and proceeds.
I recommended that they should do a Partnership Return but they are telling me otherwise.

Since this can be categorized as a Flipping House business- a schedule C can be done.

1-Is it possible to just do a Schedule C for each of their share?
2- Are we able to split the cost basis of each property and include in each of their Schedule C?

3- Or Just categorize this has a short term capital gains? ( but of course this will be less tax beneficial).

Your input is greatly appreciated!!

[BobKamman]

New client, because the last preparer fired for them for not wanting to file a partnership return?

If a married couple comes to you wanting to file as two single people, do you accommodate them?

Then there is the guy who crosses the border without a visa and works in the watermelon harvest for a couple months.  If he calls himself a resident alien, what form do you file?

And why does calling it short-term capital gain save taxes?  Same income tax, but then you save SE tax.  If you can get away with it. 

You're asking for trouble here.  

[taxmo]

That definitely sounds like a partnership.  You can't just split it and do a Schedule C for each share, no.  If they are operating a business together and splitting the profit, that's a partnership, and a 1065 return is required.  The only way that might not be a partnership would be if one person owned the business and was merely paying the other person a set fee for their time, but not sharing the risk/profit with them.

It can't just be reported as short-term capital gains (which would avoid SE tax), because it's considered to be a business if it's conducted with a profit motive, and with regularity and continuity.  It sounds like that is all true in this case.

[qbteachmt]

Whose name is on the deed when purchasing? If there is lending, whose name is on the loan(s)? When a project sells, whose name is on the 1099-S? There likely is some project insurance; whose name is on the policy?

If this all ends up being one of them as the "money man" then what you have is a Schedule C sole proprietorship with a subcontractor, and that's easily resolved. You mentioned they split the proceeds, so that amount is the 1099-NEC for the subcontractor. Make sure you follow up with the 1099 process. They're late.

The projects that span across a year end are not expense; they are asset as work in progress. Make sure you understand how to track construction accordingly, and the tax impact will be pretty much what they agreed to among themselves.

This is totally ignoring things like worker comp, worker misclassification, and doing things correctly, of course.