When having a flipping business, how does one avoid being designated as a “Dealer” by the IRS thus paying ordinary income tax on even long term holdings. Having everything in its own entity seems like the answer to me but that seems like common sense so why is it even an issue? Please help clear this up for me.
if you flip, you’re a dealer on that property.
if you buy with the intent to hold and lease, you are not a dealer on that property.
Thanks for your reply. I was under the impression that once labeled a Dealer it was across the board for all properties you own.
nope. dealer status is determined on a property by property basis. however, it is easier if you deal in a seperate entity from your holds. I can be done in the same entity, but you need to document well.