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PostHeaderIcon Real Estate Dealer – How to Avoid the Trap

Whether you call them quickturns or flips, real estate investors who primarily rehab a property and then sell those properties rather quickly may fall into a trap.  If the IRS considers you a “dealer” then they basically consider you to be no different then a retailer.  Your houses are you inventory and the sales are your proceeds and more importantly, the gross margin is subject to self employment tax.

One easy way to get out some of the self-employment tax is to incorporate.  Whether it’s an S-Corporation or a C-Corporation, there is no self employment tax.  Of course then you have the complications that surround corporations including payroll and corporate entity maintenance.

There are some other factors the IRS may look at to determine whether you’re a dealer or not.  Here’s a good piece on some of the things the IRS considers.