People engaged in frequent sales of real property need to determine whether they are real estate dealers or investors. The distinction is important because dealers and investors are treated very differently for tax purposes.

Tax Consequences of Dealer vs. Investor Status

Real estate dealers buy and sell properties as part of their regular business operations, with profits taxed as ordinary income and subject to self-employment tax.

Real estate investors purchase and hold properties primarily for long-term appreciation or rental income, typically enjoying favorable tax treatment such as capital gains rates and depreciation benefits.

Dealers and investors receive very different tax treatment, as shown in the following overview charts. Note that there are good and bad elements to each tax classification, but being classified as a dealer is usually not advantageous taxwise.

Real Estate Dealer Tax Treatment

Good	Bad
Dealers may fully deduct losses as ordinary losses, up to the annual limits on excess business losses—for 2024, $305,000 for singles and $610,000 for married taxpayers filing jointly.	Dealers pay taxes at ordinary income tax rates up to 37 percent.
Dealers qualify for the 20 percent Section 199A qualified business income deduction.	Dealers get no depreciation deductions on their properties because the properties are ... Log in to view full article. Log in to view full article Already a subscriber? Email Address REQUIRED Password Log In Send me my password Please answer this question: Are you a tax professional (e.g., tax preparer or tax attorney)?   YES     NO FREE TRIAL You'll be able to read the full article and get instant access to the last few issues of the Tax Reduction Letter Not yet a subscriber?   SUBSCRIBE with a money-back guarantee