WHERE ON SCHEDULE D CAN I REPORT A GAIN ON A CAMP AND LOT SOLD?

[shf1957]

Client, who is a small time contractor, came across a good price on a house and lot that needed repair.  He and his wife purchased it,  remodeled it and sold it for a gain.  He spent most of the year fixing it.  Where on the schedule D do I report the gain.  And /or since he did keep track of his time and what he would have charged, do I put some of it on a schedule C.   HELP!!

[qbteachmt]

It seems likely this should all be Schedule C. You stated this is in line with what they do for a living.

"And /or since he did keep track of his time and what he would have charged, do I put some of it on a schedule C"

You can't treat time as expense. Only actual Payroll is expense. The time was Invested and the sale is proof of the worthiness of the effort.

[shf1957]

He usually does not buy and fix up.  he was doing a job across the road from this.  Got the idea and bought it to make a profit / gain.   The gain would be over  50,000 for the building, materials and subs he higher to help out.  His bill he would have put towards this property for his labor is just under 20,000.  Didn't know if he should claim the 20,000 as self employment and the balance of 30,000 Plus as a capital gain?

[shf1957]

I know this is a question that is complex... his self employment wasn't the 50,000 plus.   It's because he bought it for so little ... and it was worth so much more.   Didn't think he really should pay social security on the gain of a building...I  may be wrong.

[jeffmcpa2010 · Accepted solution]

I don't believe it is complex at all.

He is a contractor. If he bought a lot and built a spec house you would put it on Schedule C.

No difference between that and buying a house needing work and fixing it up. Still within the scope of his business. Not complex. He doesn't qualify for capital gain. It needs to be included in Schedule C Sales and Cost of Goods.

It is all self employment income.

[qbteachmt]

"and subs he higher to help out"

You have a Business. His business insurance, his tools, his profession are all involved. His ability to see a potential good deal is what was applied, here.

You still have this part wrong:

"His bill he would have put towards this property for his labor is just under 20,000."

That only counts for someone on payroll. His time was reflected in the increased value of the property, as Invested Time. Stop trying to turn it into part of Costs.

[BobKamman]

Pardon me while I step aside to avoid the Schedule C bandwagon.  Contractors do work for other people.  Who did he contract with, on this property?  Does he have a history of flipping fixer-uppers?  

A garage owner sees a great deal on a 69 'Cuda.  Buys it, does a tune-up and sells it for a profit.  Does that make her a car dealer?  

IRS spends millions these days trying to prove that people don't have self-employment income.  Sure, they only do it when EIC or CTC is involved, but let's shine that light on it.  Did he 1099 the people who did the work?  Or did he do himself, the work that he usually hires out?  How involved was the wife?  More than with other aspects of the business?

How much contracting work did he have last year?  Some people lost business to Covid, while others saw their business prosper.  If his Schedule C business was dormant, don't tax him for choosing a Schedule D alternative.  

[qbteachmt]

"Contractors do work for other people. Who did he contract with, on this property? Does he have a history of flipping fixer-uppers?"

You don't need to have a history of this; it can be your first project. Everyone starts somewhere.

It's known as "Spec" or Speculative.

And don't confuse GC, General Contractors that do none of their own work and have no crew, and Contractors that work on their own and as Subs = contract to GCs.

It's not unrealistic for anyone in construction to take on a flip. That's part of their industry. The same is true for real estate agents. They come across an opportunity and pursue it.

Here would be an alternative scenario, if you don't feel the flip should be part of the Sched C operations:

He and his wife bought the property personally, intending to Flip it. You want to call this a one-time thing? As investment and not Sched C? Well, if the wife does not typically get involved in the contractor business, then sure. Now you have to execute a contract between the owners and the contractor, of course. The contract then charges his clients as usual.

The couple has basis and improvement costs as personally incurred.

The contractor has more Sched C income for his business, because his customer is paying him to prepare the property for flipping.

And just how many times would you want to run the same dollar around in circles through these people's lives?

And none of the scenarios turns the contractor's personal labor into Cost. "Sweat Equity" increases the Value, or you are doing it wrong. It's not a Cost.

[BobKamman]

Youre entitled to all your assumptions, and I'm entitled to mine.