Defining “Real Estate Investor” and “Real Estate Dealer”

The first good news is that you can be both real estate investor and real estate dealer with respect to your real estate portfolio.

The next good news is that you are in control, and by knowing just a few rules about dealer and investor classifications, you can do much to increase your net worth.

Let’s take a quick look at how big a difference you can make in the tax bite. Say you have a $90,000 profit on the sale of a property.

 

  • Dealer taxes could be as high as $46,017.

 

  • Investor taxes could be as high as $18,000.

 

The investor potentially saves a whopping $28,017 in taxes.

You, the individual taxpayer, can be both a dealer and an investor! The law does not cut you in half or anything. No, the law simply looks at each property in its respective light. But you need to make the light shine on your properties by making a clear distinction in your books and records as to which properties are investment properties and which are dealer properties.

Should you fail to make the distinction, you place yourself at the mercy of the IRS. (The word “mercy” does not exist in the tax code, so expect a very unhappy result if you rely on mercy.) The courts look at your intent in buying and holding the property. Your books and records help establish that intent.

Dealer property is property you hold for sale to customers in the ordinary course of a trade or business. The more properties you buy and the more properties you sell during a calendar year, the greater the chances that you are a dealer with respect to those properties.

Properties that you buy, fix up, and sell generally are dealer properties. Also, properties that you subdivide have a great chance of being dealer property, except when those subdivisions are done under the very limited rules of Section 1237.

Where the dealer’s principal purpose for owning property is to sell it to customers in the ordinary course of business, the investor’s purpose in owning property is to

 

  • have it appreciate in value, and/or

 

  • produce rental income.

 

Each property stands alone with respect to its status as a dealer or an investment property. Thus, you (the individual taxpayer) or your corporation may own both dealer and investment properties. If you have both types of properties, make a clear distinction in your books and records as to which properties are investment properties and which are dealer properties.

Home Office Deduction

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Do you need more 2020 tax deductions?

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2021 Last Min – Year End Retirement Deductions

2021 Last-Minute Year-End Retirement Deductions
The clock continues to tick. Your retirement is one year closer.
You have time before December 31 to take steps that will help you fund the retirement you desire.
Take a few minutes to review the four retirement plan tax-reduction strategies in this article.
You might find several thousand dollars (and maybe much more) in your pocket by taking the actions in this article. But you’ll need to act now to get the cash.

Last Minute 2020 Biz Deductions

The purpose of this post is to get the IRS to owe you money.

Of course, the IRS is not likely to cut you a check for this money (although in the right circumstances, that will happen), but you’ll realize the cash when you pay less in taxes.
Here are seven powerful business tax deduction strategies that you can easily understand and implement before the end of 2020.

Year End Medical Plan Strategies

Here are the six opportunities for you to consider for your business’s Year End Medical Plan Strategies.

Want to know more?  Have some tax questions of your own?  Get in touch with us and we’ll guide you thru the tax and accounting process.

6 + 8 =

Home Office Deduction

Home Office DeductionWith a growing number of business owners now working from home, many may qualify for the home office deduction, also known as the deduction for business use of a home. Usually, a business owner must use a room or other identifiable portion of the...

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Health Savings Accounts: The Ultimate Retirement Account

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Tax Implications of Investing in Precious Metal Assets

These days, some IRA owners and investors may be worried about being overexposed to equities. That could be you.
But the safest fixed income investments (CDs, Treasuries, and money-market funds) are still paying microscopic interest rates.
For example, when this was written, the 10-year Treasury was yielding about 1.92 percent. Ugh!
Meanwhile, the pandemic might or might not be coming to an end, the economy might or might not be okay, and inflation might or might not be controlled. Who knows?
In this uncertain environment, investing some of your IRA money in gold or other precious metals such as silver and platinum may be worth considering. Ditto for holding some precious metal assets in taxable form. This article explains the federal income tax implications. Here goes.

The Mom and Dad Hotel

Mom and Dad can rent out a room in their home or rent their entire house (tax-free) if they rent it out for no more than 14 days during the year. While the rules are generous in allowing your parents not to include this rental income as taxable income, they can’t offset that income with expenses associated with the rental.

QSEHRA and HRA

Have you established a 105-HRA, Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), or Individual Coverage Health Reimbursement Arrangement (ICHRA) to reimburse your employees for medical expenses?