Is this an investment activity for you, or is it a business? Do you have another job? Do you hold any properties for rentals? Do you flip every property you acquire?
If this is your biz, and you buy, rehab and sell every property, you are, or will soon be, a dealer. It’s not a dirty word. It just means you are in an active business, and you are taxed as such. just like a lawyer or accountant or any one else. You don’t get to depreciate your properties, and you don’t get capital gain and loss treatment.
I sell plenty of properties, but I retain a lot more than I sell. My gross rents have increased steadily over the past 6 years, and will continue to do so. Even though I will sell 5-6 properties this year, and 5-6 next year, and 5 last year, it will be difficult for the IRS to classify me as a dealer. Rents are still the main focus of my activities, the properties I have sold were held as rentals for more than a year (some 3-4 years).
The determination of dealer v. investor status is purely factual, and all the facts and circumstances are considered.
Yes, this is a problem with flipping properties. Actually you don’t have long term capital gains (15% rate, holding rental property over one year), you have earned income (upto 35% rate). Even worse, the IRS could classify you as a dealer and force you to pay self employment Social Security (FICA, 13% both sides) tax on this earned income. Oh, ya in CAlifornia you pay another 9.3% earned income (even if it is a long term capital gain). Work hard, the government is depending on you!