if you are engaged in the trade or business of buying, rehabbing and flipping, you muct use Schedule C. This also means no depreciation expense, and the full load of self-employment taxes.
if these were really investment transactions, you get to report them on Schedule D (or 4797–I get these mixed up). and you have capital gain. if your holding period was less than a year, you have a short-term capital gain. STCG’s get no special tax break, but at least you will side-step the SE taxes.
so, which are you?
it depends. if these were your very first deals, you are probably an investor, and would survive a challenge by the IRS. but if these were your 15th and 16th flips, you are in a business.
Posted by Kenneth Ortiz on October 28, 2006 at 16:31:11:
i did two fix-and-flips this year. bought low, rehabbed them and then sold them high, i made a decent profit on both. these were my first deals. when i file my taxes, do i file a separate schedule-C for each property as if each property were a separate “business” or is there a special form form for real estate transactions?
Put them on a schedule D as short-term capital gains. If you keep flipping, it will begin to look like a business, and schedule C may be appropriate, which will subject you to self-employment taxes. At that point, it may be better to form a S-Corp, then pay yourself a salary to protect some of your profits from SE tax. At some point, you may consider keeping a few of the properties as rentals for a period of time, then selling them rolling the profits into another property via a 1031 exchange, that will give you the cash flow that you want.