Schedule D or Schedule C?

Forum|Forum|6 years ago
December 7, 2019
2 replies
11 views

Person that has no construction background decided to buy an acre and build a home on it. His participation involved finding subcontractors for the plans, pretty much. Once the house was built, he hired a realtor and sold it. Made some profit then decided to do it again. So in 2018 he has two homes that he built and then sold. If he will continues to do this it's obvious that he will need to open a company, but if he only did it that two times I'm a little confused. He said that in '19 he did not buy any land or anything to build on and he does not know if he will.

Any good advice?

Thanks

ProSeries Professional

This topic has been closed for replies.

Best answer by CMS_VA_CPA

I am leaning towards Schedule C based on information provided-

1. TP has done this multiple times

2. TP bought the land with the intent to build and sell.

3. TP acted as a general contractor and provided the construction plans- "His participation involved finding subcontractors for the plans, pretty much". TP apparently monitored the work and approved payments- both progress payments and final.

4. The fact that he used a realtor to sell the property does not change the character of his actions above.

C

CMS_VA_CPAAnswer

Level 4

I am leaning towards Schedule C based on information provided-

1. TP has done this multiple times

2. TP bought the land with the intent to build and sell.

3. TP acted as a general contractor and provided the construction plans- "His participation involved finding subcontractors for the plans, pretty much". TP apparently monitored the work and approved payments- both progress payments and final.

4. The fact that he used a realtor to sell the property does not change the character of his actions above.

itonewbie

Level 15

That would be my inclination given what we're told.

---------------------------------------------------------------------------------Still an AllStar

itonewbie

Level 15

If the activities are sufficiently regular, continuous, and substantial, it's a §162 trade or business with its income reportable on Sch C and taxable as ordinary income at marginal rate. Otherwise, the income may be reportable on Sch D.

You mentioned that he hasn't had any transactions in 2019. While that may be a factor to consider, your key focus should be on the level of activities he undertook during 2018.

---------------------------------------------------------------------------------Still an AllStar

G

Ghost-TaxAuthor

Level 4

Thank You for your input. I was also leaning towards the Schedule C since he did it twice and might do it in the future. What got me thinking was the fact that he hasn't done this before nor that he didn't do any work other than subcontracting to the homes that he sold.
Many many thanks and I hope you have a great tax season.

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