bought and flipped in 2009, sold in 2010, how to file taxes?

[Juan Sui]

I bought the property in late 2009, hired and paid a contractor to do renovation in 2009, the property is to be sold in 2010. The contractor is asking me for a 1099 for 2009, but what should I do with the 1099? I want to deduct that amount when I sell the property which is late this month, how should I proceed with that? Should I just ask for a paid in full invoice from the contractor, and give him a 1099 for 2009, but do nothing with that 1099 in my 2009 tax return, and wait until 2010 to deduct theose expenses with the invoice I received from the contractor? Thanks very much.

[Jon Holdman]

The money you spend to fix up the house goes to increase the basis. The house would show up as a purchase on your 2009 taxes. The amounts you spend fixing it up aren't really deductible in any year, but they would be reported on your 2009 return. When you sell, you pay taxes on the net sale price less the basis. Since the amounts you paid out increase the basis, they reduce your taxes.

What does your CPA have to say about how to handle this? Taxes on flipping aren't exactly a DIY project.