Posted by James Strange on July 13, 2002 at 22:55:16:
He is talking about the IRS dealer status. Here is what I pulled off the IRS web site.
REAL ESTATE DEALERS - If you are a real estate dealer, rent received in the course of your trade or business is included in self-employment income. You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales.
Notice it does not say if you wholesaled, assigned or retailed just that you sold.
I plan to start out by wholesaling and flipping properties. How would I get around “dealer” status? Would I have to flip and also lease out a few of my properties? I am planning to form a C-Corp. Thanks!
I don’t have the michigan laws here, but to protect myself, I will be using a CPA, first to get advise. If so approved to work, I plan to setup three corps. One will be for short-term investments primarily. The other will be for longer term investments. My theory is that if one is declaired a dealer the other will not.
Flipping can be profitable, but watch out for the taxes, Dealer or not…
Good luck and don’t get discouraged.
I have a friend that wants to reach the point that he owes the IRS $1,000,000 for one years income. (told him he’s insane!) He wants to earn enough to owe that much tax. To each his own.
2 seprate entities c corp for flipping c corp cannot 1031 exchange
LLC or Limited Partnership or hold personally for leased out properties for long term gain
if you sell more than 5 properties in a single year, even if they are all your own, you must become a licenced agent(except residential builders of 1-4 units selling what they themselves have built) So it depends on your state laws. Even if you form your C-corp, here in Mich your corporation would need a BROKERS licence, with a living broker as a principal to the corporation. So if you lived here, flip 5 yourself and then take a break or become buddies with an agent or Realtor who will be a transaction coordinator for small fee. Sorry if I rained on your parade, but don’t get discouraged. Scott
Did I miss soomething? Really? Lie on your tax returns? Or just don’t put the income on them if you just wholesaled the property? Meaning, buying the property then “assigning” it to your new buyer.