I need help on schedule D-here's the quick details. I bought a house at auction and paid for it through my home line of credit for 76,000. There was a 3,000 dollar fee I paid to the auctioneer. I sold it 4 months later for
110,000 and had expenses of 8,000 to fix it up. Questions: Can I deduct the 3,000 dollars I paid to the auctioneer and if so do I add that to the cost basis? Can I deduct mileage I used to get to the house every day to fix it up? Do I deduct my home line of credit interest as an expense on schedule D, or do I deduct it somewhere else?
Why do you think schedule D applies rather than schedule C? At first glance, this appears to be a business activity rather than a passive investment. Seth
The OP provided insufficient information for any of us to determine whether he is engaged in a schedule C activity or has a capital gain.
The auctioneer's fee is added to basis in the real estate.
I'll have to think about that.
Subject to the $100,000 limit on heloc principal, the interest could be deducted on Schedule A. Otherwise -- dang, it's late -- maybe it's capitalized. In the next few weeks, I suggest you consult with a local tax professional who is experienced in both taxation of real estate transactions and taxation of small businesses. Certainly do this before you buy another house to flip.
Anything that is an expense can be deducted when flipping a house. If this is your primary job, then you will need to determine how you do it. When I flipped mine, I already had a job but I went to the house every day to check up on it. I deducted mileage every day at the current rate. I deducted ALL materials and tools required to do the job I deducted ALL expenses in printing out flyers, ink, etc. I deducted ALL fees, including insurance, closing fees and home equity interest. Since you are doing it for profit, anything that comes out of your pocket is an expense.
So yes, you can deduct the auctioneer and all of your 8000 in expenses if they were used for the house. Your mileage will vary upon the area you live in. Also your interest is deductible as well and ANY interest on credit cards you used to purchase things. Since it is a short term gain, you will be taxed upon your percentage of total income. For example, if you make 40K a year and you make 50K off the house, you will be taxed as if you made 90K a year. A good way to bypass the system is this.
If you have a parent or family member who makes minimal money and will stay in the 15% tax bracket, "pay" them enough money to get them right below the 28% tax bracket. Let them pay the taxes on that amount (basically you pay them the money they would be required to pay) and then now your income is lower and less taxes on the amount goign into the next tax bracket. By doing that, you can save 13% off any capital gains that exceeds the next tax bracket. Hope pthat helps.
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