Self-employment Tax and Dealer Status

Hello to everyone, I have a question about selling a property within the period of a year. I have read that if you elect to sell a property with the period of one year that you are classified as a dealer. (Regardless if you sell the property yourself or from an L.L.C.) I believe that being characterized as a dealer subjects you to pay self-employment taxes.

Can any tax professionals provide me with the current self-employment tax rate?

Thank you.

I am not a tax professional, but if you look at the IRS web site, you can see that the rate is 15.3% on the first $90K (in 2005) of social security income and 2.9% on taxable self-employment income above $90K.

depends. If you buy it with the intent to resell for a profit, then you have dealt that property. You would treat it as selling inventory.

If you are a sole prop, it will be ordinary Sch C income, taxed at your marginal rate plus self employment at 15.3%.

If you are a partnership or LLC taxed as a partnership, it will be ordinary partnership income that flows thru to you as ordinary income taxed at your marginal rate plus self employment tax.

If you are a corp or LLC taxed as a corp, it will be sales revenue less COGS, taxed at the corp marginal rate.

If you are an S-corp or LLC taxed as S-corp, it will be ordinary income that flows through to you as ordinary income taxed at your marginal rate plus self employment tax. BUT, if you are paid a salary by the S-corp, you may be able to avoid the self employment tax.

However, if you purchased the property to rent, advertised it for rent, insured it as a rental, heck maybe even rented it for a month or 2 before you decided to sell it, THEN it’s an investment property held under one year taxed at your marginal rate BUT you shouldn’t have self employment taxes since it’ll be on Sch D rather than Sch C.

thanks for the information Dave T and McWagner. McWagner, can you define the acronym, “C.O.G.S.”?

Cost of Goods Sold. A line item found on Schedule C (1040).

Thanks for defining the acronym, C.O.G.S., Dave T.

also note that “dealer status” is done on a property by property basis and is also a function of the intent of the property when purchase (fuzzy). As mentioned, renting a some period of time and then selling will kick into in the “investment” catagory without too much arguement.

Thanks for the information aak5454. It is most appreciated.

Mind if I cut in and add a wrinke?

What if your regular income (salary) already caps out the social security tax limit (i think it caps out at like 90k or something close to that). My withholding at work normally stops in Sep-Oct when I pass the limit. Would that nullify the self-employment tax as well?


Self employment income tax has two components – social security and medicare – just like the payroll taxes withheld from your paycheck at work.

When you exceed $90K in taxable earned income, only the 12.4% Social Security portion of your payroll taxes and of your self-employment income tax stops. The 2.9% Medicare tax applies to all your earned income with no limit on income.

If you go back to your paycheck stubs for the end of last year, I bet you will discover that your withholdings did not go away completely. Income tax and medicare tax are still withheld for earned income beyond $90K.

my apologies. My quick response was technically flawed. Thanks, Dave, for keeping me straight.

Sorry if I was unclear; I was referring to social secutrity withholdings that stop. Thanks for the respsones.