IRS Dealer status question

[Mike Nelson]

I have a friend who was recently laid off and was looking to buy an REO in an OK neighborhood. If he buys it, fixes it up and decides he doesnt like the neighborhood in say 3 months time, and decides to sell, can the IRS flag him as a dealer? I only find the word "intent" when I research this.

[Steven Hamilton II]

J Scott,

I know we typically agree on things. This time I actually am going to disagree with you.

If you friend had an opportunity to acquire a property buy, fix up and sell. As long as he is not going intending to repeat this pattern he should not have a problem. If he does repeat it within a reasonable time he should definitely be paying Self employment taxes on the ordinary income.

Since this is a one time deal he is not engaged in a trade or business at that point. "Real estate dealer. You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales." - IRS Publication 334 Chapter 5 (http://www.irs.gov/publications/p334/ch05.html)

-Steven the Tax Guy