deducting flip expenses in one year, selling house in another

[Lalainya Rawlings]

Hello all! 

My wife and I completed our first flip (just before Covid hit **whew**) but we held the house across the new year. So, 2019 is nothing but expenses. How should we itemize expenses for 2019 while protecting ourselves from 2020 showing a large gain?

[Nicholas Aiola]

@Lalainya Rawlings Costs related the flip (purchase price, rehab, holding costs, etc.) are not deductible until the property is sold. In other words, you will not report any expenses related to the flip in 2019 - it will be inventory. Once the house is sold (2020), the total cost will be removed from inventory and deducted as cost of goods sold.

This is true whether you have an LLC or not.