Sch C vs Investment Property

[taxes96786]

Client inherited 4 properties. My intention is to rehab/remodel them and then sell. Would you recommend that I create a (Flipping) business for the properties until they sell or just retain them as inherited/investment properties until rehabbed and sold?

I am not sure which is more beneficial for tax purposes. All are expected to be disposed of via sale within 3 years.

All responses are appreciated.

[abctax55]

My intention ??

[TaxGuyBill]

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@abctax55 wrote:

My intention ??

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Yeah, I totally love it when my clients let me sell their properties (and keep the proceeds of course).  🤣

[taxes96786]

Sorry, typo...client's intention. The "I" refer to conversation from client.

[taxes96786]

# Lisa...care to comment?

[Just-Lisa-Now-]

Many times when someone inherits a home it needs substantial work in order to sell it.  This wouldn't be considered a "flipping business" and put on Sch C.

[taxes96786]

Could you elaborate? This involves 4 separate properties, all in need of major rehab. Is it just because the property was inherited and not purchased by the client? There is a basis on the properties.

[Just-Lisa-Now-]

I personally dont think this is flipping business. He didnt seek these properties out for investment or business purposes.

He inherited these properties and in order to sell them, he needs to make substantial repairs, this isnt uncommon when someone inherits a home that hasnt been kept up.

[taxes96786]

Couldn't an argument be made that, once inherited, the TP's intention was to rehab and sell. Does it really matter how the property was obtained? It is investment income, intended for gain on value. My question is would it be more beneficial, tax wise, for the TP to run it through a Sch C business?

[Just-Lisa-Now- · Accepted solution]

Sch C you're looking at profits subject to SE taxes. As opposed to capital gains for selling an investment.

Sch C, all the rehab costs are part of inventory until the house sells, so Im not seeing much benefit from going the Sch C route...what are you trying to accomplish?

[taxes96786]

Thanks...that really helped and was what I was looking for.