Dealer Status and Installment Sales

[Ben Gonzalez]

My understanding of Dealer Status is that if you are flipping on terms (in my case: buy on terms, fix -or not-, then sell on terms) then you lose the ability to be taxed as an installment sale where your gain is spread out over the term of your note.  

This really hurts when you have, for example, a $50k gain that is fully taxable on year one, while you only made say $15k on the downpayment.  Now you have $15k owed in taxes, instead of the taxes being spread out over 30 years.

Is this correct?  Are there any ways to still do this strategy and still be taxed per the installment sale code?

I also hold rentals as well, so I have a separate entity for that...in case this factors into any consideration of the above.

Thanks in advance everyone.

[Ashish Acharya]

Originally posted by @Ben Gonzalez:

Wow thanks for the reply @Michael Plaks I had to read that a couple times to let it sink in.

I think I understand the options you've laid out and #3 seems to be the most reasonable, but is it true that it really doesn't matter how long you hold them, the IRS can still classify you however they see fit?

Follow on to that is, do they classify you dealer/investor on a deal by deal basis? Say I have a Series LLC set up where each cell of the series is it's own entity, will one cell that holds a rental property be classified as an investment property along with all the "investor" benefits, while the next cell could be called a flip or dealer inventory? Or would they just sweep everything into one bucket or the other?

 I agree with you Michael. For the tax return presentation on the subsequent years after you have already paid taxes on the profit, how have you been showing the previously taxed income?