How do you handle flipping houses

[dr58lj15]

I have a client that is planning to flip houses.   My thoughts are that he purchases the houses, keep up with the expenses to repair and refurbish to increase the basis.   Does anyone have other suggestions.  We do know there will be capital gains involved. Would you enter this information on Schedule C as a business called flipping houses?

[BobKamman]

No, there will not be capital gains involved.  There may be ordinary income, or ordinary loss.  Keep track of the cost of inventory, report its sale when it happens.  

[Just-Lisa-Now-]

if you google  

how to report house flipping income expenses

you'll find tons of information explaining how this is done.

[dascpa]

I've taken a different approach to reporting flips based on a conversation with a tax partner at KPMG.

On the Sch C in the revenue section I create a supporting worksheet showing the gross contract price of each house sold. In the cost of sales I create a supporting worksheet of total cost basis (purchase price + capitalized settlement costs on purchase and sale + improvements) of each home sold. Then of course any G&A expenses in the body of the Sch C.

But to avoid any matching issues with the 1099-S I also report on Sch D the 1099-S (contract price) of the house and a cost basis exactly equal to that to reflect a -0- capital gain. The description on the Sch D is the home address with a notation this is reported on Sch C.  The only reason again is to avoid any potential matching issues.

[BobKamman]

@dascpa That just creates an audit selection issue, when IRS uses gross receipts on all schedules to determine which returns have the highest numbers.  Schedule D is for capital assets, not inventory, and practitioners who play "Trick the Computer" won't know what hit them until it's too late.  

Speaking of KPMG, there's this: "The US Public Company Accounting Oversight Board (PCAOB) on April 10, 2024, said it fined KPMG Netherlands a record $25 million for cheating on mandatory internal training exams by more than 500 of its professionals from at least October 2017 to December 2022."