Hi Barb:
A real estate dealer is a person who is involved on a regular basis in the development, improvement, and advertisement of property for sale. Subdividers and developers are almost always labeled as dealers. However, even if you are not a subdivider or developer, you may be labeled a dealer if your real estate activities rise to the level of a trade or business with your property investments appearing more like inventory to be sold rather than long-term investments. Everything turns on your intent.
I'd just like to add that there have been instances when only one sale by a taxpayer has been considered an asset held "primarily for sale to customers in the ordinary course of a trade or business".
Also, the intent factor is of course reflected by your activities, so even if you truly intended to hold as an investment (capital asset), if your actions appear otherwise you will be considered a dealer.
This is a very complicated area, you should seek out an attorney familiar with tax for advice if you are really concerned on this point.
It depends on how many you intend to do per year. Too many and there is no dodging the dealer label. If you only do a few, it is possible to break them up into different entities; corps, LLCs, LPs, et cetra. Also, if you have buy-to-hold (investment) properties as well as buy-to-sell (flipping) properties you will really want to segregate the activities via different entities. Conventional wisdom say s-corps for flips (avoids self-employment tax) and LLCs or LPs for long-term stuff.
I agree with richardw above.
Right or wrong, many people have been determined to be dealer status when their tax return preparer selected that as a profession on the 1040 instead of real estate investor. In my opinion only properties that are you are "dealing" should be subject to the tax laws designed around dealer status. Properties that you live in, or hold as investments shouldn't.
One possible solution would be to set up a busines entity to handle only the "Dealer" type properties, and use something else for the "Investment" type properties, and file your tax returns accordingly.
[ Edited by jeff12002 on Date 03/09/2004 ]
Hi Barb:
A real estate dealer is a person who is involved on a regular basis in the development, improvement, and advertisement of property for sale. Subdividers and developers are almost always labeled as dealers. However, even if you are not a subdivider or developer, you may be labeled a dealer if your real estate activities rise to the level of a trade or business with your property investments appearing more like inventory to be sold rather than long-term investments. Everything turns on your intent.
Richard, thanks for the quick reply. So how do you rehab,wholesale,quick flip, property without being considered a dealer?
Respectfully,
Barb
I'd just like to add that there have been instances when only one sale by a taxpayer has been considered an asset held "primarily for sale to customers in the ordinary course of a trade or business".
Also, the intent factor is of course reflected by your activities, so even if you truly intended to hold as an investment (capital asset), if your actions appear otherwise you will be considered a dealer.
This is a very complicated area, you should seek out an attorney familiar with tax for advice if you are really concerned on this point.
It depends on how many you intend to do per year. Too many and there is no dodging the dealer label. If you only do a few, it is possible to break them up into different entities; corps, LLCs, LPs, et cetra. Also, if you have buy-to-hold (investment) properties as well as buy-to-sell (flipping) properties you will really want to segregate the activities via different entities. Conventional wisdom say s-corps for flips (avoids self-employment tax) and LLCs or LPs for long-term stuff.
I agree with richardw above.
Right or wrong, many people have been determined to be dealer status when their tax return preparer selected that as a profession on the 1040 instead of real estate investor. In my opinion only properties that are you are "dealing" should be subject to the tax laws designed around dealer status. Properties that you live in, or hold as investments shouldn't.
One possible solution would be to set up a busines entity to handle only the "Dealer" type properties, and use something else for the "Investment" type properties, and file your tax returns accordingly.
[ Edited by jeff12002 on Date 03/09/2004 ]