If you elect to treat it as a passthrough entity (as you probably should) the income will be passive (i.e. no se tax) and depreciation/interest/expenses should offset most if not all of the income assuming this is a residential property.
Taxes for Land Business
Since this is my first year in the land business and I haven't done a lot, I was hoping to still do my taxes myself. This could be a silly question, but if I purchased several properties, but haven't sold them, is there anything I document in my taxes?
Does the purchase of those properties count as business expenses?
When I do sell the properties, do I count all of the sale price as income or only the amount that is profit?
I will most definitely have someone do my taxes next year, but hoping for a fairly simple answer for this year.
I believe I found the answer for this in case anyone else is interested. The cost of land purchased for investment becomes your basis in the property, which is a capital asset, so you don't receive depreciation or other deductions for the purchase. When you sell the land, that basis will reduce the income your receive when selling it.
Dustin Karels - I'm a tax dummy, so you're better off talking to an accountant about this... but my understanding is that if you're running your business under an LLC and being taxed as an individual/sole proprietor, I believe you would report everything under a Schedule C as part of your personal tax return. Even if you haven't made a dime, you would still want to report your expenses and activity there.
If you aren't running everything under a separate business entity, then I guess that would simplify things from a tax standpoint... but again, that's about the extent of what I know.
Dustin Karels Hey Dustin. Take a look at a Schedule C tax form. Taxable money = Net profit. Use Schedule C regardless of entity. In other words, it is self-employment income. Unless you are a corp the net profit "passes thru" to your Form 1040 - Personal Income Tax Form. Yes, price of the property is a capital expense. Generally that expense is taken when you sell as Cost of Goods Sold. All other expenses are taken in the tax year in which they occur as is all Revenue/Sales. So, the basic formula is Sales minus Cost of Goods Sold (COGS) minus expenses equals Net Profit.