Would you rather pay taxes at 15 percent or 43 percent?
Donald Flood filed his tax return to pay federal taxes at the 15 percent capital gains rate that applies to real estate investors.
The IRS objected. It wanted Mr. Flood’s profits taxed as dealer income. Dealer income is business income subject to self-employment and ordinary income taxes. In Mr. Flood’s case, his combined tax rate on dealer income comes to about 43 percent.
The court ruled that Mr. Flood is a dealer and gets to pay taxes at the 43 percent rate.
Mr. Flood’s Activities
From 2001 to 2008, Mr. Flood bought at least 250 vacant lots at bargain prices. He combed local county records to locate sellers, contacting them by mail and ultimately closing sales using agreements and documents he prepared.
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