I am located in New York and am thinking about getting back into buying, renovating and re-selling houses. Does anyone know how many homes a person can sell within a yearly period in New York before their amateur status changes and they are considered a “Dealer” or professional by the powers that be?
I think you have to pay more taxes on any gains with the elevated status.
For IRS purposes, there is no “magic number” to be considered a dealer, and you are correct in that dealer profits are taxed as normal income rather than long term capitol gain (if the property is held for at least 1 year + 1 day) and the profit will be subject to self employment tax. Alternately, if you are not a dealer but do not hold the property for at least 1 year + 1 day, profits will be short term capitol gains taxed at your nominal rate, although not subject to self employment tax.
That being said, IIRC, the IRS test is that the buyer “intends” to purchase and utilize the property as a long term investment. Therefore, document your intent. Add a clause to your purchase contracts that you intend to use the property as a long term rental. Advertise for tenants…you can always place free ads in craigslist and keep copies of the ads. You are allowed to change your intent and sell the property so documented intent would be useful is the IRS attempts to classify you as a dealer. However, no amount of documentation will discount your actions… if you act like a dealer by consistently reselling properties without ever renting any, it is likely the IRS will eventually classify you as a dealer.
If possible, having a couple actual rental units that proves you are in the rental business would likely be helpful in fighting an attempt by the IRS to classify you as a dealer. If you rent a property for a year or two before selling and regularly replace the properties for legitimate business purposes, i.e. you needed the funds from the sale of property 1 to fund the purchase of property 2, you would likely have a good defense against getting classified as a dealer.