basis or expense

[chadw]

a group of 3 guys set up an llc and bought 2 houses and fixed them up. The houses are currently up for sale on the market. Would the costs associated in "fixing up" the houses be added to the basis' of the houses and held as an asset?

chad

[TAXBILLY]

Yes.

Are they a partnership or a corporation?

taxbilly

[chadw]

Yes.

Are they a partnership or a corporation?

taxbilly

they formed an llc to be taxed as a partnership in 2008.

[TAXBILLY]

Good. Then capital gain treatment applies.

taxbilly

[chadw]

Good. Then capital gain treatment applies.

taxbilly

exactly. unless this becomes more of a business and then forced to show as inventory vs. an asset.

[michaelmars]

doesn;t sound like cap gain to me, the business was rehabing the houses that makes it all ordinary income and even if cap gain - if they sell in less than a year then short term anyway and the only issue is se tax

[OldJack]

While working on 2 houses at the same time certainly might imply that this was a business operation, it might still be considered improving investment assets and recognized as business assets for form 4797. Its a gray area. You really need to talk to the owners as to their intent of operation. Are they investing or rehabbing? Would they rehab anyones property?

[chadw]

While working on 2 houses at the same time certainly might imply that this was a business operation, it might still be considered improving investment assets and recognized as business assets for form 4797. Its a gray area. You really need to talk to the owners as to their intent of operation. Are they investing or rehabbing? Would they rehab anyones property?

you're exactly right oldjack. I haven't sat down with the clients yet. So their intent of this operation isn't totally clear yet.

thanks for the replys and advice