If someone purchases several homes for investment purposes, and if these homes are never rented out, how do you report mortage interest, property taxes, maintenance expenses in the tax returns?. Can you dedcut these expenses in Schedule E or should they be added to the cost basis?
Also if someone is actively invloced in buying property, holding them for few years and selling them, does he use schedule C or schedule D?
The property taxes are deducted on Schedule A, and the mortgage interest in the investment interest line of Schedule A.
If you are under AMT you get no deduction for property taxes.
You can make an election under IRC section 266 to add the property tax and/or mortgage interest to the cost basis. I'm not quite sure how it works, so maybe someone else can say more.
Do they also live in the house? If not, do the rent out the house? If they live in the house, then Schedule D as it a capital gain on personal property with a rate of 15%. If they rent it out, it's business property, so the business tax of 25% on depreciation and capital gains tax rate apply. Note: the max rate is 15% or 25%, but if your marginal tax rate is lower then the tax rate is lower. If you don't live in the property or rent it out, then I guess it is Schedule D long term capital gain but could be wrong. I've heard some people say it is ordinary income.
OP asked if one is actively involved in buying, holding without use or rental and selling properties over a number of years, is it Sched. C or D. Sounds to me like one is operating a business. Use Schedule C if a sole proprietorship.
Investment interest requires investment income to be deductible. Where's the income? He's going to need form 4952.
Schedule E doesn't apply if these properties are never available for rent.
Schedule C. The properties are his inventory.
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