Beginner Tax Question Involving Father & Son

[Josh Hanson]

Hello sorry for such a noob tax question but I just wanted some general guidance on how taxes would work in my case. I am fairly new to real estate and this is the first property I am considering flipping. This year on paper I purchased a Short Sale property and have been rehabing it and my father and I have been both contributing about 50/50% on expenses and labor. Most of the work we have done on our own. The initial intent was to keep this home as a long-term rental and possibly refinance when rates go down but now we are considering flipping it. It works out perfectly because the neighbor's house which is very similar is being flipped by an experienced flipper so I will have a very good comp to compare against very soon. Collectively we have invested over $40k and by the time we are finished will probably be close to $50k. I purchased the home for $181k + about $50k reno and the house will likely be valued at around $330-350k when it's finished. 

My question is from a tax perspective what is the best approach to write off these improvements because some of the cost is funneling through my father and some through me. Will this get cloudy because I do not have an LLC for this property? Is there any way for me to write off a fair labor rate for all of the work my father has put into the property even though he doesn't own a home improvement business? My understanding is that I cannot write off my labor since I own the property but many hours have been put into this project so I am seeking the best advice to lighten my tax burden and hopefully my father's. Any guidance would be greatly appreciated!

Thank you,

Josh

[Matt Devincenzo]

There's nothing labor related to write off because you haven't 'paid' for it. If you did pay for it there wouldn't be any change because you'd be moving the money from 'profit' on the flip to 'wages' for labor...effectively paying the same taxes. It would only change if you paid someone else because then you'd be deducting from your profit and they would pay taxes on their wages...someone is still paying it just shifts the tax to them for their service.