All Forum Posts by: Jonathan Krueger

Thank you! I like the approach of treating it as a current asset and moving to inventory once I have the deed. My gut was telling me calling it inventory was strange when it could be redeemed and removed from "inventory" by next year, but I wanted to hear it from another source who deals with finances more than I do. Many thanks!!!

I invest in tax deeds. After I purchase them the property owner has a 1 year redemption period. If the property is not redeemed, I get the Quit Claim Deed after 1 year (approximately 12-15 months after the sale). If the property is redeemed, I get my purchase price back + interest. 

It's obvious for my circumstances that for IRS purposes, I'm a flipper and am treated as Dealer Status. Thus I understand that any property I own is to be included as inventory on my Schedule C. My question is regarding the Tax Deeds that are in the redemption period where I don't yet have the Quit Claim Deed yet, should those also be included in my inventory numbers? I understand that purchases of additional inventory decrease purchase costs COGS purposes. What feels odd about including a deed that is still in the redemption period as inventory is that if the property redeems later in the year, that would decrease my inventory numbers for next tax year which would appear to the IRS as a loss. It FEELS like a tax deed purpose should be treated like a loan to the county for the redemption period and only become inventory if the property isn't redeemed once I have the Quit Claim Deed in hand. I can't sell the Tax Deed until I have the Quit Claim Deed after the redemption period. So I have a hard time wanting to call something I can't resell and that can possibly be redeemed "inventory." But I realize that what feels right to me and what the IRS thinks are two different things. And I want to do it the way the IRS wants in case I'm ever audited. So if it's a gray area, I want to go with the caution side - not the side that could give me a whopping tax bill if I'm audited.

Does anyone know how this should be treated?