Investment property interest and sale of property following year

Forum|Forum|3 years ago
April 2, 2023
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Purchased Flip property in October. Received Form 1098, so I input mortgage interest as a business expense, under Business Income and Expenses. Is this correct?

Then sold property following year, so then on the following years return I will input sale which will include all expenses and profit from sale, correct?

JamesG1

Are you a real estate investor or a real estate dealer?

Generally speaking, real estate investors purchase real estate with the intention of holding their properties and gaining a financial return. A real estate investor will report the 'flip' as the sale of an investment asset on Schedule D Capital Gains and Losses.

The property sale would be reported in the year of the sale. The adjusted cost basis would be the original purchase price plus the cost of materials, cost of repairs and cost of contracted services.

Real estate dealers are in the regular business of buying, repairing, and flipping houses as an ongoing trade or business. A real estate dealer reports the 'flip' on Schedule C Profit and Loss From Business.

If you are not a real estate dealer, mortgage interest is deductible on Schedule A Itemized Deductions for your main home and a second home.