residential real estate, fixes it up and resells it. His
previous CPA put most of his operating expenses (property
taxes, mortgage interest, sales expenses, etc.) into the
general & admin. section of the P & L. Last year (2005) he
had to change accountants and the new one put all that into
cost of goods sold. Needless to say there is a vast
difference between the gross profit sections of the 2004 and
What is the preferred way (that will make IRS happy) of
reporting these expenses? I tend to side with the first
accountant who specialized in this area.
Both accountants showed the property assets in "other
assets" on the balance sheet. I would treat this as
inventory since that is what it is. I guess my manufacturing
background is coming out. Is there a reason it is not shown
Also my client is buying property to flip in Texas. He plans
to hold it for a while until the market recovers to a level
where he can recover his costs and make a profit. If he
rents the property out for the convenience of his company
while he is holding it, does he have to take depreciation?
The property was acquired in the normal course of business
and will be sold at an appreciated price. The rental is just
to get some income to cover costs while it is being held.
Linda Dorfmont E.A., CFP, CSA