I have heard conflicting answers to the question of what is Dealer vs what is RE Professional under the IRS code. One tax attorney told me you can do 5 fix and flips lifetime, but #6 throws you into dealer/developer status and you pay full income tax on your profits, unable to qualify for a 1031 exchange on capital gains, as dealers can’t do this. If this is true, can I do 5 each in different LLC’s or something creative like that?
Does anyone out there know how I can find a good real estate tax attorney? Thanks.
I think the real person you need to talk to is an “EA”. This stands for “enrolled agent” which means they are tax professional that has been trained and receives continuing training directly form the IRS. This is a fairly high level of certification and the person who does my tax (who is an EA) seem to be able my starnge tax questions with ease.
I have done quite a bit of reading on this topic and never hear of lifetime limits, but who knows what is buried in the millions of pages of the tax code. Its a grey area from my understanding that is largely dictated by percentage of total income from that flipping activity and duration of holding. Of course, if you are using corporation or other entities, this will change it as well.
From CPAs and Tax Lawyers I’ve learned that there isn’t a hard and fast rule for being a dealer. A real estate professional is someone who is full-time or works a certain number of hours in the profession each week.
Check out these good articles from Creonline. http://www.creonline.com/articles/art-246.html