When does a Home Builder deduct Contract Labor.

Forum|Forum|4 years ago
March 14, 2022
2 replies
19 views

Client is small S Corp Home Builder. Builds 1 house per year and sells it before the year's end. For tax year 2021, he built a house & paid his subcontractors, plumber, electrician, masonry, etc. all in 2021 but did not sell the house until February 2022. #1 Since he is a builder selling less than $ 25,000 000.Can he deduct his subcontractors until 2022 when the house sold? and # 2 Will he give subcontractors' 1099s NEC in 2022? Thank you.

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Best answer by IRonMaN

They are inventory costs that won't be expensed until 2022. The 1099s should have gone out in January for the 2021 payments.

IRonMaNAnswer

Level 15

They are inventory costs that won't be expensed until 2022. The 1099s should have gone out in January for the 2021 payments.

Slava Ukraini!

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AdriAuthor

Level 4

Thank you very much for your answer.

dascpa

Level 11

Agree with IronMan. Most small home builders are on the Completed Contract Method of accounting. Therefore all costs are capitalized until the property is sold. Then it is expensed as a cost of sale. But the taxpayer still reports subcontract labor to the IRS for 1099 purposes on the cash basis method - in the year paid.

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AdriAuthor

Level 4

Thank you very much for your answer and the explanation.

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