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By Ted Lanzaro, CPA
One of the most popular ways that both beginning and experienced real estate investors choose to generate cash flow for their real estate investing is through a quick sale or “flip” of a property. These transactions often generate the income that an investor lives off of while building a portfolio of “holding properties” to generate future wealth.
The Internal Revenue Service may determine that you are a real estate “dealer” if you buy and flip properties based upon what they determine your intent was when you purchased the property. The factors used by the Internal Revenue Service to determine “dealer“ status are as follows:
The largest concern that a real estate investor who does a lot of “flips” has is that the laws related to “dealer” status are vague and the determination of intent is subjective with no clear cut criteria. This is a heavily litigated area of tax law and court opinions are often inconsistent and vary from judge to judge.
How does “dealer” status hurt the real estate investor?
If the Internal Revenue Service determines that you are a real estate “dealer”, you can lose the following tax-saving benefits:
Tax Planning Considerations
There are several tax planning considerations and strategies that one can use to manage the implications of the “dealer” status. They are as follows:
For more information about tax strategies for real estate investors, contact CPA Ted Lanzaro by clicking here.