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Updated almost 4 years ago,
Dealer vs INvestor IRS classification
I own a Real Estate C Corp that Flips properties. I also own a construction/ design company that gets paid from the C-corp through a 1099 each year when I do construction or design services for the C Corp.
Averaging about once every 2 years or so I will buy a property to Flip personally in my personal name not in the C-Corp. Usually this is because I might want to keep it as a rental property or move into it as a primary residence.
I purchased a large home in 2018 that I had planned on Renovating as my primary home.. Well, about 1/2 way through covid hit and renovations stopped for about a year..
I then decided to complete the house renovates and just sell the house.. I held the house for just over 2 years. 2018 bought and sold in 2020.
I also own 4 rental properties that I have held for over 5 years and I'm declaring on my schedule E
My question is would the IRS consider me a Real Estate Dealer? My primary business through the Corp is "Flipping" properties but any property truly bought to be flipped is bought in the corporate name. Also, any properties I buy to "Flip" are bought under my Corporation and are taxes as business ordinary income
Since this home was not purchased with the intent to "Flip" (The reason I purchased it in my personal name and not my Corporation) and since I held the house for over 2 years (past the 1 year long term capital gains rule) Won't this qualify as long term capital gains 20% as opposed to ordinary income tax rate? Net profit is about $100k so it's not a small difference in Tax rate when you include the higher ordinary income rate and self employement taxes.
Thanks for any insight.