tax questions for real estate construction contractor?
tax questions for real estate construction contractor?
take an example: the company is an LLC(in NY), and constructs condominiums which will be sold after it's done. If the company uses cash method for accounting, how to report the tax if it has a gain? or loss? in which form? any publications referral? thanks!
Answers:
amin: If you are maintaing a proper accounting system,and not cheating then its possible to show up your accounts
2006-11-03 15:53:21
2006-11-03 15:53:21
Mathew: Try this web site it has a great deal of information.
http://www.smallbusinessaid.net/llctaxes.html
2006-11-03 16:57:24
2006-11-03 16:57:24
Chosen Answer
FlCpa: Usually when you are completing a long term contract you would use the percentage of completion method to recognize revenue, however the one exception is real estate construction contractors. You can use the completed contract method of accounting and recognize all revenue when the project is complete and you begin selling condominiums. (CAUTION: completed contract method is not allowed for AMT so if you fall in the AMT catagory the difference between completed contract and percentage of completion will be an add back during construction years) When you say "cash method of accounting" I'm going to assume you do not mean that you are "expensing" construction costs as they are paid that would be wrong, wrong, wrong. Your expenses should be capitalized into what will become the "basis" for the real property when you sell it. Ideally you would be tracking the costs of each individual condominium unit but assuming that you you are building "cookie cutter" every-conduminium-looks-like-the-one-beside-it kind of condominiums you will be able to use your total costs divided by total square footage and then multiplied by the square footage of the units as you sell them (keeping in mind that condos that you hold longer will end up with a larger basis due to "carrying costs"). When you are doing this caluclation remember that your total costs include "common area" costs that will not be divided into the condo units. Those costs will be depreciated by you, if you continue to own the main building, or used as basis for your sell of the common areas. I don't know a publication off the top of my head but if you go to this link it will give you several IRS regulations and rev. rulings that will help you: http://www.irs.gov/businesses/small/industries/article/0,,id=99237,00.html
2006-11-03 18:57:07
FlCpa: Usually when you are completing a long term contract you would use the percentage of completion method to recognize revenue, however the one exception is real estate construction contractors. You can use the completed contract method of accounting and recognize all revenue when the project is complete and you begin selling condominiums. (CAUTION: completed contract method is not allowed for AMT so if you fall in the AMT catagory the difference between completed contract and percentage of completion will be an add back during construction years) When you say "cash method of accounting" I'm going to assume you do not mean that you are "expensing" construction costs as they are paid that would be wrong, wrong, wrong. Your expenses should be capitalized into what will become the "basis" for the real property when you sell it. Ideally you would be tracking the costs of each individual condominium unit but assuming that you you are building "cookie cutter" every-conduminium-looks-like-the-one-beside-it kind of condominiums you will be able to use your total costs divided by total square footage and then multiplied by the square footage of the units as you sell them (keeping in mind that condos that you hold longer will end up with a larger basis due to "carrying costs"). When you are doing this caluclation remember that your total costs include "common area" costs that will not be divided into the condo units. Those costs will be depreciated by you, if you continue to own the main building, or used as basis for your sell of the common areas. I don't know a publication off the top of my head but if you go to this link it will give you several IRS regulations and rev. rulings that will help you: http://www.irs.gov/businesses/small/industries/article/0,,id=99237,00.html
2006-11-03 18:57:07