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The buying and selling of property may be considered self-employment/business income or investment income if it does not fit under the category of rental income. Ultimately, the taxpayer must determine the true nature of his or her operations and how it should be classified:

  • Rental income reported on Schedule E
  • Business income reported on Schedule C
  • Investment income reported on Schedule D

Note. The IRS is looking closer to determine in each situation whether buying and selling properties is "real estate investing" or actually a "trade or business". There are no exact guidelines for this determination; however, the IRS looks at the facts and circumstances of each case individually.

Rental Income:

In most cases, you must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property.

To enter or review information for Schedule E into the TaxAct program:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal.
  2. Click Rent or Royalty Income to expand the category and then click Real estate rental income
  3. Click +Add Federal Schedule E to create a new copy of the form or click Review to review a form already created 
  4. The program will proceed with the interview questions for you to enter or review the appropriate information

Self Employment/Business Income:

If you are in the business of selling property (a real estate dealer), you would report that business on Federal Schedule C. 

Per IRS Publication 334 Tax Guide for Small Business (For Individuals Who Use Schedule C), page 21:

Real Estate Rents

If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc., who provides services (maid services, etc.) for guests, report the rental income and expenses on Schedule C. If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. For more information, see Pub. 527, Residential Rental Property (Including Rental of Vacation Homes).

Real estate dealer. You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Rent you receive from real estate held for sale to customers is subject to SE tax. However, rent you receive from real estate held for speculation or investment is not subject to SE tax.

To enter or review information for Schedule C into the TaxAct program:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal.
  2. Click Business Income to expand the category and then click Business income or loss from a sole proprietorship
  3. Click +Add Federal Schedule C to create a new copy of the form or click Review to review a form already created 
  4. The program will proceed with the interview questions for you to enter or review the appropriate information

Investment Income:

If you determine this sale would be considered property held as an investment, rather than in the business of "flipping" houses, then the sale would be reported on Schedule D as a capital gain or loss.

Fix up costs, expenses of sale and commissions would be added to your original cost/basis to arrive at the amount to enter for Cost or other basis. The program does not ask for these items separately. You will want to keep detailed records to support this entry.

To enter or review information for Form 1099-B into the TaxAct program:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal.
  2. Click Investment Income to expand the category and click Gain or loss on the sale of investments then click Capital gain or loss (Form 1099-B)
  3. Click +Add Form 1099-B to create a new copy of the form or click Review to review a form already created 
  4. The program will proceed with the interview questions for you to enter or review the appropriate information

Investment interest expense deduction is claimed on Federal Form 4952 Investment Interest Expense Deduction and the allowable deduction will flow back to Schedule A, Line 14 to be claimed as an itemized deduction, up to the amount of your investment income.

To enter the information for Form 4952 in the TaxAct program:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal.
  2. Click Itemized or Standard Deductions to expand the category and then click Interest Expenses
  3. Continue to the screen titled Enter the amount of investment interest you paid or accrued in 2019
  4. The program will proceed with the interview questions for you to enter or review the appropriate information to complete Form 4952

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