I’m new to the real estate world. Been reading for years and finally jumping in. I’m starting out by doing contract assignments. I have one question that I cannot find anywhere. How does contract assignment relate to IRS real estate dealer or investor status? You never own the property. I know that it is counted as regular income, but is there any danger of being labelled as a dealer? Thanks! :help
You’re a middle party to the sale of the real estate. The seller either has to pay taxes on the capital gains of the sale or is exempt from them if it was the sellers primary residence for at least two of the last five years. You as the middle party are just getting an assignment fee for the sale of the property. Think of it like a Realtor’s commission, but you’re not a licensed Realtor in this case.
Investors pay capital gains on profits from sales of real estate that was held for things like long term rentals. For investors who flip properties, their properties are considered inventory and taxed under their ordinary income rates along with other taxes. Total tax liability for a flip can be in the range of 45% of the gross profit from the sale.