Long Term Capital Gain Expenses
I purchased a house at a Sheriff Sale in Feb. 2005. I have rehabbed it throughout the year of 2005 and look to put it on the market in March of 2006 making it a long-term capital gain. I understand that the cost basis= purchase costs+improvements+selling costs-depreciation. Where do my costs for evicting the prior homeowner fit in? Also, expenses such as mileage to and from the rehab, cleanout costs(the place was a mess), personal supplies and labor (i painted the whole house myself), property taxes, homewoners insurance where do all these expenses fit in? Can they be included in reducing the capital gain? By the way I purchased the home for 140k, have 35k into the rehab, and can sell for probably 230k. All cash, no mortgage involved. Also if i paid the contractors I used, do i need to 1099 them? And, all of these expenses will be on the 2006 tax year, even though the majority of the rehab was completed in 2005. Any help with these questions is greatly appreciated.
Very good info and I really appreciate it. I just have heard that the IRS will only peg you as a dealer if you perform many flips throughtout the year and not just one like I am doing.
Thank You all for your replies. I am now clear on the issue. Now to decide on sell or rent.
Quote:Very good info and I really appreciate it. I just have heard that the IRS will only peg you as a dealer if you perform many flips throughtout the year and not just one like I am doing. What you "heard" is misinformation.
There is no such thing as "dealer status". The IRS does not "peg" anyone as a dealer. Instead, the IRS looks at each transaction to determine whether a "dealer disposition" has occurred for that transaction.
The IRS tax code defines a dealer disposition as "any disposition of real property held primarily for sale to customers:" The word ANY in this definition tells me that even if you only flip one property, you have acted as a dealer to real estate for that transaction. Your sale is a dealer disposition, even though you have only done one.