Solved: Schedule D or Schedule C?

Ghost-Tax · ‎12-07-2019

Person that has no construction background decided to buy an acre and build a home on it. His participation involved finding subcontractors for the plans, pretty much. Once the house was built, he hired a realtor and sold it. Made some profit then decided to do it again. So in 2018 he has two homes that he built and then sold. If he will continues to do this it's obvious that he will need to open a company, but if he only did it that two times I'm a little confused. He said that in '19 he did not buy any land or anything to build on and he does not know if he will.

Any good advice?

Thanks

CMS_VA_CPA · ‎12-07-2019

I am leaning towards Schedule C based on information provided-

1. TP has done this multiple times

2. TP bought the land with the intent to build and sell.

3. TP acted as a general contractor and provided the construction plans- "His participation involved finding subcontractors for the plans, pretty much". TP apparently monitored the work and approved payments- both progress payments and final.

4. The fact that he used a realtor to sell the property does not change the character of his actions above.

View solution in original post

CMS_VA_CPA · ‎12-07-2019

I am leaning towards Schedule C based on information provided-

1. TP has done this multiple times

2. TP bought the land with the intent to build and sell.

3. TP acted as a general contractor and provided the construction plans- "His participation involved finding subcontractors for the plans, pretty much". TP apparently monitored the work and approved payments- both progress payments and final.

4. The fact that he used a realtor to sell the property does not change the character of his actions above.

itonewbie · ‎12-07-2019

That would be my inclination given what we're told.

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Still an AllStar

Ghost-Tax · ‎12-07-2019

Thank You. I really appreciate your feedback. As I mentioned to the other person that gave his input, I was in doubt because from what this person said: he did not have any construction feedback whatsoever, he still held his day job as an account rep., and did this just by finding subcontractors on google or craigslist. Also the fact that he does not know if he will do it again or not kept me thinking about how this situation should be best presented in a tax return.
Thank You once again.

itonewbie · ‎12-07-2019

If the activities are sufficiently regular, continuous, and substantial, it's a §162 trade or business with its income reportable on Sch C and taxable as ordinary income at marginal rate. Otherwise, the income may be reportable on Sch D.

You mentioned that he hasn't had any transactions in 2019. While that may be a factor to consider, your key focus should be on the level of activities he undertook during 2018.

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Still an AllStar

Ghost-Tax · ‎12-07-2019

Thank You for your input. I was also leaning towards the Schedule C since he did it twice and might do it in the future. What got me thinking was the fact that he hasn't done this before nor that he didn't do any work other than subcontracting to the homes that he sold.
Many many thanks and I hope you have a great tax season.

Marc-TaxMan · ‎12-07-2019

To me it sounds irregular, not rising to a trade/business. Sched D is cheaper. Especially with nothing more on the horizon today.

Schedule D or Schedule C?

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