Hello BP! This is my first post ever even though I've been reading on the site for some time. I can usually find the answers I need in old threads but on this subject I haven't found exactly what I am looking, hence the post!

After speaking with a few private equity friends along with an accountant I believe the following structure may minimize the federal tax liability on a fix and flip property and help the investor avoid a lot of SE Taxes as well as having the asset sale taxed as a sort term gain. I'm not looking for a specific calculation rather a high level consensus a deal structure like this works

Take an example where the sale of an investment property generates $500k after six months where you owned 90% and a second partner owned 10%. Therefore you would be subject to SE Taxes and have the asset taxed as ordinary income.

Take an example where the property is purchase in the Owner of House, LLC. that pays a preferred return of x% then returns capital and profit in proportion to the original contribution. The attached org chart shows an S-Corp as the Active "dealer" investor in the structure along with two limited passive investors. Using the same $500k profit example above, the S-Corp receives $50k as gross revenue which it uses to pay Ind. Investor 1 a reasonable salary. Therefore only $50k is subject to tax as ordinary income, and even less SE Taxes. The passive investors are able to claim a short term gain avoiding the SE Tax. In particular, the Ind. Investor 1 books a $400k capital gain, and say for example only $25k in ordinary income and $25k salary subject to SE Tax. Ind Investor 2 books a $50k capital gain.

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Insight on Avoiding Dealer Status

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