Are you a real-esate dealer or investor?

[Eric Brown]

This seemed like a good topic for new comers to the real-estate profession:  are you a dealer or an investor?  The answer can mean paying 15% income taxes on selling a property or 25%, 27%, 37% or more depending on your tax bracket.  The answer to the question, like all things in taxes and accounting, is of course it depends.  Generally, dealers are making money on a house sale by selling it to an end user (i.e. home owners).  So, this would include flippers, agents, and developers.  Investors on the other hand hold onto a property like a stock.  Their goal is to make money on the appreciation in value.  So, rental properties generally are investors.  They're getting money off rental income over the years, but when they turn around and sell it, the money they made was from its appreciation.  The determination of dealer vs investor ultimately falls into the oh so clear and concise (note the sarcasm) income tax concept of "all the facts and circumstances."  Note that in my examples above I said generally because there are exceptions to all of them where the other classification applies.  There are a number of tests you have to consider, and that is my purpose for this discussion.  Please ask me your questions, and I'll help relieve the burden of this particular tax code enigma.