Posted by The Baze on March 29, 2000 at 15:22:28:
Yes, the option consideration will go on Sch E as rental income, basically a forfeited security deposit. Your flips can be handled one of 2 ways. What I normally do, even though I didn’t take title to the property, is report on Sch D as though I had, with your purchase price as your basis and the sales price. In other words, I agree to buy a house for $50,000, but I assign the agreement to you for $5,000 and never take title. I put on Sch D a basis of $50,000 and a sale of $55,000. You could also put on the Sch D a sale w/ a $0 basis and a sale of $5,000. The net effect is the same, and it’s a short term gain, taxed at ordinary income rates. I prefer the first way because many folks who review the return may not be familiar w/ assigning contracts, but they do know flipping properties, and I don’t like it if they have questions about what’s going on.