Speculation House

[peppier]

What is the name of your state? NM

I don't know if this is in the right place.

My son bought a house in 2007 and remodeled it for resale. It isn't going to sell until January.

Does anyone know what IRS form he will file and will he have to claim the interest he has paid on his loan in 2007 or can he carry it forward to 2008 when the house sells?

[abezon]

If he lived in the house, the interest is deductible as mortgage interest on Schedule A, as are the property taxes. If he did not live in the house, then he can dedcut the interest as investment interest, and most of the interst will be carried forward until he has investment income (capital gains from selling the home) to deduct it against. Alternatively, he can file an election to capitalize the interest and/or taxes (the improvements get capitalized automatically), which will result in less taxable gain in 2008. Depending on whether he already itemizes and whether the sale will produce long or short-term gains, this may be a better option. He should see a tax pro with experience in house flips this spring.

The big question will be whether this is a business for him (ordinary income & self-employment taxes), or whether it was an investment (capital gains & no SE taxes). A tax pro can help with this determination.

[peppier]

Thank you for your answer.

[peppier]

I was going to let it go at your answer but the part about the self-employment made me wonder.

He has a full time job, W2 and all that but the net from this sale will be over what he normally makes. This is his first flip and maybe his last, it was just something that kind of happened, a really, really cheap house that he knew he could fix and he couldn't pass it up.

[abezon]

Then it sounds like it's not a business for profit, so no SE taxes. I hope he kept excellent records his expenses & mileage. Every receipt he has reduces his taxable gain.....

[peppier]

Yes, he did keep good records and receipts cuz good ole mom told him he had to.