I have heard John Hyre and Al Aiello speak on “dealer properties” and my impression is that YOU are not a dealer, only the PROPERTY is either dealer property or not. So each DEAL would be evaluated separately. Of course, the IRS judges everything in the context of the surrounding circumstances. So if you’ve done many dealer-type sales over time, it would be one of the indications that subsequent deals might also be adjudged as sales of dealer inventory. But I don’t think that a sale of a “dealer inventory” type property that you just built would be viewed as a non-dealer property by the IRS merely because it’s your very first real estate transaction. At least this is my perception of what the experts like John Hyre say.
We are buying a house w/ extra lot. After fix-up of house and costs of subdividing off the extra lot, we will actually take a small loss on the resale of the existing house in order to obtain that extra lot. Here’s where the plot thickens. We want to build and sell a house on the extra lot. This is our first deal, and we really need to conserve our profit from it in order to proceed with more investments. I assume that we can’t do a straight 1031 exchange when we sell the new house because it would be considered “dealer property”. But is there a way to structure the sale of the new house in order to make it legal to do a 1031? I was thinking along the lines of using the new house as a “model” for a while (demonstrating our product to generate future building business) so that it could possibly be considered property used in a trade or business. Or possibly doing a refi of the new house after completion of construction in order to pull out $, then selling it on a lease/option. Would this work? If not, is there anything else that anyone can come up with that would work?
Why do you assume the property would be deemed “dealer property?” From your facts, it seems you are many years and many deals from earning the “dealer” label.