Ok, As a rehabber, I usually fix up one home a year. It most generally takes me less than a year to fix it and have a realtor sell it for me. Am I considered a dealer, wholesaler, or a rehabber? Tax wise how does that effect my profit? Just curious and trying to understand terms better.
According to REIclub glossary:
Dealer - one who holds real property primarily for sale to customers, merchandise is inventory and gain on sale is treated as ordinary income.
Wholesale - to contract a property with the intention of reselling it quickly at a higher price.
According to your definition, you are a dealer whether you are rehabbing to flip property, or wholesaling. In each case, the real estate you acquire is done so with the intent to resell for profit.
Your flip profit is ordinary income subject to self-employment income taxes. If done as a sole proprietor, you would report your income and expenses on Schedule C (1040) and compute your self-employment income tax on Schedule SE (1040).
“Dealer” is really a misnomer. Instead, the IRS will say that your property flip is a “dealer disposition” and that you ACTED as a dealer to real estate for that transaction. The IRS does not really classify an individual as a “dealer”.