Real Estate Developer LLC

An LLC was formed in 2006 to acquire a 3 unit residential property, renovate it totally and sell the 3 units.

Some questions:

In 2006 all costs were "capitalized". In 2007 more renovations occurred and 2 of the 3 units were sold 12/2007 at a loss. I plan to treat this as a trade or business. I will deduct all costs as "COGS" and inventory the 3rd unit at 12/31/07. Sound ok?

Besides the mortgage that was paid in full there was a private loan that was satisfied at less than amount borrowed in 2008 at the last closing. Would this be a reduction of the property basis or separately stated income (eg debt forgiven).

Thank you in advance.

Kevin

Reply to
keefnj
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wrote

Sounds good so far.

I believe it'd be looked at as a basis reduction.

Reply to
Paul Thomas, CPA

Unlike the other response (so far), I do have a problem with that. You're changing your accounting procedures and might be required to file a form

3115. You need to treat the activity consistently. Either these 3 units are capital assets or they are inventory. How did you report them in 2006? If the 3 units were not in inventory on 12/31/2006, then you are changing your method if you inventory the remaining unit.
Reply to
D. Stussy

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