Question

Business Investment - Build and Sell home

Forum|Forum|3 years ago
April 13, 2023
1 reply
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My LLC acquired a construction loan in 2022, construction began in 2022 but the construction and sale of the home was completed in 2023. The LLC has less than a million $ in receipts per year. What should I deduct in 2022 (if anything)?

I received a 1098 for the mortgage interest and points paid. Should I deduct this in 2022? If so, can I deduct origination closing costs, property taxes?

Or will all expenses related to this transaction be deducted in 2023 because that's when the home sold?

G

GeorgeM777

It depends on your business' type of accounting. Cash accounting records income and expenses as they are billed and paid. With accrual accounting, you record income and expenses as they are billed and earned. As long as your sales are less than $25 million per year, you’re free to use either the cash basis accounting or accrual method of accounting.

Thus, if your LLC employs cash accounting, then report the expenses that were incurred in 2022, on your tax return for 2022. For example, if your 1098 reflects 2022 mortgage interest and points paid, then include such expenses on your 2022 return. Loan origination fees likely need to be amortized over the life of the loan. Prepaid interest, if any, also needs to be allocated over the tax years to which the interest applies. You may deduct in each year only the interest that applies to that year.

@Ash55

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