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Updated almost 8 years ago,
How does the government look at income from real estate?
If someone bought a property today and rented it out, they would declare the income on their taxes. The income would be passive. There for based on my understanding is someone who collects Social Security Disability or Retirement wouldn't risk losing their benefits because they aren't "working." If 2 years later, they sell that house and make $20,000 profit, they still wouldn't risk losing their benefits.
At what point does your real estate activity become an active business in the eyes of uncle sam where you would owe small business tax of about 15% for social security and medicare as well as income tax. In other words, when does the buying and selling of property become a small business?
In this simplified example, If I bought 10 houses this year, rented them out, and then sold them a year or two later, is that just passive, non small business activity, just personal investment, or is that considered small business activity where I would owe the 15% tax in addition to my income tax?
I hope I've made myself clear. I basically want to know how the government looks at real estate investing for income.