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Posted by Paul Thomas, CPA on March 29, 2008, 9:05 am
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> An LLC was formed in 2006 to acquire a 3 unit residential property,
> renovate it totally and sell the 3 units.
>
> Some questions:
>
> In 2006 all costs were "capitalized". In 2007 more renovations
> occurred and 2 of the 3 units were sold 12/2007 at a loss. I plan to
> treat this as a trade or business. I will deduct all costs as "COGS"
> and inventory the 3rd unit at 12/31/07. Sound ok?
Sounds good so far.
> Besides the mortgage that was paid in full there was a private loan
> that was satisfied at less than amount borrowed in 2008 at the last
> closing. Would this be a reduction of the property basis or separately
> stated income (eg debt forgiven).
I believe it'd be looked at as a basis reduction.
--
Paul A. Thomas, CPA
Athens, Georgia
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