income taxes Posted February 19, 2008 Report Share Posted February 19, 2008 Client paid 43,000 for a lot, built a house on it and sold it. Can you put 43,000 in section 5 of C and not raise a red flag? Thank you. He is a self employed carpenter. Quote Link to comment Share on other sites More sharing options...
Chrisbry Posted February 19, 2008 Report Share Posted February 19, 2008 The cost of the lot is added to the cost of the house for COGS and reported as such. If he would have sold the lot separately from the house, it would be reported on Form 4797. Quote Link to comment Share on other sites More sharing options...
OldJack Posted February 19, 2008 Report Share Posted February 19, 2008 The cost of the lot is added to the cost of the house for COGS and reported as such. If he would have sold the lot separately from the house, it would be reported on Form 4797. This is probably an investment property where the carpenter rehabs the house and sells it. All costs are capitalized as cost of the property. It is not business property, form 4797, unless he "uses" it in his business. Rehabing investment property is not using the property. The entire sale should probably have been reported on 1040 Sch-D not subject to the SE tax (as would be with reporting on Sch-C). Quote Link to comment Share on other sites More sharing options...
income taxes Posted February 19, 2008 Author Report Share Posted February 19, 2008 My brain is dead today. Thank you for your help. Quote Link to comment Share on other sites More sharing options...
OldJack Posted February 19, 2008 Report Share Posted February 19, 2008 My brain is dead today. Thank you for your help. Wait!!! There are a lot of people around here with brain farts and I am sure they will post different opinions than what you have see so far. :lol: Quote Link to comment Share on other sites More sharing options...
lbbwest Posted February 19, 2008 Report Share Posted February 19, 2008 Wait!!! There are a lot of people around here with brain farts and I am sure they will post different opinions than what you have see so far. It has been said that one is judged by the company one keeps. Quote Link to comment Share on other sites More sharing options...
Chrisbry Posted February 19, 2008 Report Share Posted February 19, 2008 I guess I misunderstood -- I thought he BOUGHT A LOT and BUILT A HOUSE. That isn't "rehabing" a house (which is basically remodeling a house). Investment lots are sold as land on Form 4797, Section 1. Quote Link to comment Share on other sites More sharing options...
joelgilb Posted February 20, 2008 Report Share Posted February 20, 2008 Looks to me like he just became a builder and his income belongs on Schedule C, which I think is what "Income Taxes" is asking. And as for putting in Part V of schedule C, this is not only a large number for this section, it is for OTHER EXPENSES. The land should be part of COGS and belongs in part III along with the other construction costs. Oh, and Oldjack, usually I agree with you, but is time I think you had the Brain Fart. He did not say he was rehabbing anything nor that this was investment property. He said that the client bought land and then Built a House on it. He also said the guy was a carpenter. Now not knowing more of the actual facts. This looks like Carpenter just became a Builder, thus schedule C and SE tax. Joel CPA JD Quote Link to comment Share on other sites More sharing options...
OldJack Posted February 20, 2008 Report Share Posted February 20, 2008 Oh, and Oldjack, usually I agree with you, but is time I think you had the Brain Fart. Joel CPA JD Yes I had a big brain fart!! He did indeed say he built a house rather than rehab a house but that may make little if any difference. There is nothing to keep an individual from investing in property and improving the property [by building] before selling said property and thereby not be in a trade or business of building or selling property. An investor can buy land and develop land [for a shopping center] with the sale of said land as a capital asset. Just because he is a carpenter and did this one time [or even occasionally] does not itself make it a trade or business for 1040 Sch-C. He did not "use" the property in a business so the property is not business property [code §1231 or §1250, form 4797] or for 1040 Sch-C unless it is considered inventory. I would say it would not be inventory for resale until it is ready for sale. It would appear that this property is code §1221 capital asset property for Sch-D. So the question here is what is the status of the carpenter? Is he an individual investor or is he in a trade or business? Maybe we should ask the carpenter and not automatically make that decision for him. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted February 20, 2008 Report Share Posted February 20, 2008 I agree with Jack that it could go either way. Was this a one-time only event? Does he intend to become a builder on a regular basis? Did he continue his carpentry work for others while he was building the house, or just devote all his time to the house? Just because he decided to that 'on the side', if that is what happened, does not make it a 'business'. Lots more details needed before I could make a call one way or the other. Quote Link to comment Share on other sites More sharing options...
income taxes Posted February 20, 2008 Author Report Share Posted February 20, 2008 I agree with Jack that it could go either way. Was this a one-time only event? Does he intend to become a builder on a regular basis? Did he continue his carpentry work for others while he was building the house, or just devote all his time to the house? Just because he decided to that 'on the side', if that is what happened, does not make it a 'business'. Lots more details needed before I could make a call one way or the other. He bought the lot on June 2006 and finished the house in March 2007. He did other carpentry jobs to the tune of 20658 in 2007. He will not build anymore houses. He does file a C for his Carpentry work and has for years. Thanks you for your help. Quote Link to comment Share on other sites More sharing options...
Booger Posted February 20, 2008 Report Share Posted February 20, 2008 Looks to me like he just became a builder and his income belongs on Schedule C, which I think is what "Income Taxes" is asking. And as for putting in Part V of schedule C, this is not only a large number for this section, it is for OTHER EXPENSES. The land should be part of COGS and belongs in part III along with the other construction costs. Oh, and Oldjack, usually I agree with you, but is time I think you had the Brain Fart. He did not say he was rehabbing anything nor that this was investment property. He said that the client bought land and then Built a House on it. He also said the guy was a carpenter. Now not knowing more of the actual facts. This looks like Carpenter just became a Builder, thus schedule C and SE tax. Joel CPA JD Booger CPA, SOB, CAT, DOG, whatever other initials behind my name. Quote Link to comment Share on other sites More sharing options...
OldJack Posted February 20, 2008 Report Share Posted February 20, 2008 Booger CPA, SOB, CAT, DOG, whatever other initials behind my name. I guess I should start signing: OldJack, CPA, BF (Brain Farter) :D Quote Link to comment Share on other sites More sharing options...
joelgilb Posted February 23, 2008 Report Share Posted February 23, 2008 Guess I was just trying to let everyone know I speak from experience and education and didn't have a BF or a bowl movement for that matter! And I also think I have most of those other initials after my name as well including MF! BTW Booger, read many of your posts. You always seem to add a sense of humor. So don't ever get serious, we need your humor around here. Joel Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.