asset or expense - Other financial corporation

[schirallicpa]

business activity is "other financial vehicle".

The purpose of the corporation was to purchase a piece of property and  then sell for profit.  The taxpayer did not report on the 2017 the purchase of the real property.  In 2019 the property was sold.  He's saying that the 2017 purchase was the purchase of an asset and the non-reporting is a mute point because it was just a balance sheet transaction and the balance sheet did not need to be prepared.  (yeah - I know)

But if corporation is in business to do this stuff, then is it an asset, an investment, or an expense.  I'm leaning toward investment.  But my mind is fogged by this guy.......I'm firing him after I get through this one.  UGH

The sale in 2019 generates a significant gain.  

 

 

 

[BulldogTom]

Sounds like an Inventory Asset held for resale.   

Tom
Modesto, CA

[schirallicpa]

right - I don't want to have depreciation on this (?).  Because it's not a used asset - it's a held asset.

 

[jklcpa]

14 minutes ago, schirallicpa said:

right - I don't want to have depreciation on this (?).  Because it's not a used asset - it's a held asset.

 

Even if it was held for investment purposes, say for it's potential to appreciate in value, unless it had some income-producing component such as a rental, then there would be no depreciation allowed.

The classification really boils down to intent. I'm curious how carrying costs on the property handled?  If capital property, was the election made to capitalize the carrying charges, and were the elections to do so included with the 2017 and 2018 returns?  Were those carrying charges expensed? 

[Lion EA]

Inventory, maybe.

[Gail in Virginia]

If it is inventory, wouldn't that make it ordinary income?  Whereas investment property would qualify of capital gain treatment?  Or maybe not.  I don't know much this time of year. 

[schirallicpa]

2 hours ago, jklcpa said:

Even if it was held for investment purposes, say for it's potential to appreciate in value, unless it had some income-producing component such as a rental, then there would be no depreciation allowed.

The classification really boils down to intent. I'm curious how carrying costs on the property handled?  If capital property, was the election made to capitalize the carrying charges, and were the elections to do so included with the 2017 and 2018 returns?  Were those carrying charges expensed? 

well - this guy didn't record anything.....and this is where I'm starting.......I have the best clients.......

[schirallicpa]

1 hour ago, Gail in Virginia said:

If it is inventory, wouldn't that make it ordinary income?  Whereas investment property would qualify of capital gain treatment?  Or maybe not.  I don't know much this time of year. 

That's what brought me here because that makes a huge difference on his return.  (S-corp).  I'm thinking it's an investment asset.

 

[Lee B]

I would definitely consider it Investment Property. Then there is the question of whether there were any 2017 or 2018 expenses that need to be capitalized.

If so, would filing 2017 & 2018 late returns offset the late filing penalties for the S Corp?

[jklcpa]

28 minutes ago, schirallicpa said:

I have the best clients.......

 

Hey, they must be friends or relatives of my clients...or use the same barber. 

[schirallicpa]

I appreciate everyone!

thank you.