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Article Date:
May 2010

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

Let’s start with the big-time tax consequences.


Profits on dealer sales are generally subject to taxes at both



ordinary income rates of up to 35 percent, and


self-employment rates of up to 14.13 percent.1


In addition, dealers may not



depreciate property held for sale to customers,


use the tax-favored installment method to report their property dispositions, or


defer taxes by using the Section 1031 tax-deferred exchange on dealer properties.


Good Tax Breaks for Dealers


Tax law treats the dealer just as it does any business, and that includes some good things for tax purposes.



Dealers treat real-estate selling expenses, commissions, legal fees, and advertising as ordinary business deductions.


Losses on the sale of dealer properties are not limited by the $3,000 capital loss cap that exists for investor properties.


Dealers deduct the loss as an ordinary loss.


Dealers deduct the entire loss (immediately or over time using the net operating loss rules that allow carryback for up to five years and carryforward for up to 20 years).



Good Tax Breaks for Investors


Profits on investor sales are



taxed at tax-favored capital gains ... Log in to view full article.

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