Try this link. I think it has more articles and information related to business deductions. In any event, maybe these links will give you some idea what to look for regarding business deductions that you can take to reduce your taxes.
Also, don’t overlook getting good professional advice as your income grows. A good CPA does not really cost you money…they save you money in the long run!
I have a bird dog that is pretty good at finding preforeclosures and getting them under contract. Her average is somewhere around 70% of ARV (After repaired value). She brings me a prospect once a month. These homes would make great lease homes, however I just want to repair them and sell them off.
My question is, how can I do this type of volume and avoid the dealer status from the IRS. Any help in resolving this issue is greatly appreciated.
No cure necessary for “Dealer” status. all that is necessary is to isolate these transactions that are Dealer activity, into a seperate Corp or Entity. Only purchase those properties in that Entity which you plan to Flip… Never buy something in that Entitiy that you plan to hold/rent, and depreciate. Those properties go into the entity which holds all your rentals or L/O properties.
Pretty simple process, but it does require forethought and planning, and some extra paperwork, of the two or more entities.
The official rule is that your intention at the time of purchase is what determines the status of the investment. Is it for re-sell or is it a long term investment. The number of deals you do makes it harder to prove you are doign soemthing different from your norm. But, what you describe are dealer transactions. If you do that, then set up a s-corporation and run with it. Even if you do just one deal with the intention of re-selling immediately, then that is a “dealer” transaction.
I am a dealer, and happily take all of the tax advantages that come from being a dealer. Yes there are some.
Re: The Cure For Dealer Status? - Posted by Bill Taylor
Posted by Bill Taylor on January 06, 2003 at 22:03:28:
Planning is the key. I hold for the purpose of avoiding the dealer status and it is a lot more difficult and time consuming than straight out flipping. My goal is to reduce our tax liabilites. We have been long term holders of property for years. I would like to flip more props. this year and will probably do so in my ROTH. Flipping can be fun and profitable, you get to see real quick what you have produced. Holding the properties can sometimes mean that your l/o deals turn sour and you have to hold for much longer periods of time.
SuperCat - Please share with a clueless newbie… - Posted by leslie - FL
Posted by leslie - FL on January 04, 2003 at 23:37:02:
…some of the tax advantages that come from being a dealer. I’m not being flip - I truly don’t know. I’m trying to get started in creative RE investing, and everything I think I want to do points to dealer status, which has always worried me. I guess I’ve heard horror stories about being labelled a dealer by the IRS, and that the label “dealer” is forever. Do you have some soothing words for me?
There are several pages of good information there. You don’t have to buy anything to read them.
You will find that setting up your business correctly allows you to deduct as business expenses many of the things you are now spending money on, but for which you do not currently get a tax benefit. Generally, any expense you incur that has a business purpose can be deducted to offset the gross revenue of the business in the calculation of your taxable income.
Also, you should set up your businesses to separate your dealer activity from your investment activity so that you can control the tax impact of each type of transaction. That is, keep all of your Buy/Sell activity in one corporation or LLC, and hold your Rental Properties in another entity or entities, safely away from your dealer properties.