Article Date:
November 2018


Word Count:
1719

 

 

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 37 percent,1 and

·

self-employment rates of up to 14.13 percent.2

 

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.

 

1.

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

2.

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

3.

Dealers deduct the loss as an ordinary loss.

4.

Dealers deduct the entire loss (either immediately or over time using the new net operating loss rules that allow carryforward forever).

 

Good Tax Breaks for Investors

 

Profits on investor sales are

 

·

taxed at tax-favored capital gains rates of 20 percent or less, and

·

not subject to self-employment taxes.

 

Say you have a $90,000 profit on the sale of a property.

 

·

Dealer taxes could ... Log in to view full article.

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