Flipping but won't be done until next calendar year, tax advise?

[Philip Johnson]

Hi,

My first post!

I have a house that I am doing a full-time live-in flip on.  I am complete rehabbing the front unit, and then adding on/converting garage into 2 bedroom house.

Problem is, I won't be done until next year.  I file a schedule E with itemized depreciation of improvements.  Can I claim 2019 expenses in 2020? Otherwise, all of those deductions will be lost?  

[Ashish Acharya]

Originally posted by @Philip Johnson:

Hi,

My first post!

I have a house that I am doing a full-time live-in flip on.  I am complete rehabbing the front unit, and then adding on/converting garage into 2 bedroom house.

Problem is, I won't be done until next year.  I file a schedule E with itemized depreciation of improvements.  Can I claim 2019 expenses in 2020? Otherwise, all of those deductions will be lost?  

There are both good and bad new.

Unfortunately, if you are living in the property, it’s a personal asset and all the expenses are personal In nature. There is no depreciation as well. In general there is no depreciation on flip peopery even if you didn’t live in it. 

All the improvements will be added to the basis of your peopery and when you sell it, your gain will be lower.

Unlike non live-in flip, small repairs are not capitalized and the expenses are personal in nature. There is an expectation to that rule, so I recommend grouping small repairs with big projects so that you get to capitalize repairs as well. 

Good news is that, if you live in the property for 2 years, there will be no tax on the gain. 

Also there is no schedule E reporting. When you sell it, it will be reported in your personal schedule D as sale of a capital asset.