How to avoid self employment tax when flipping properties?

[Andy K]

Hi all,

A friend of mine and I are planing to partner up and fix and flip properties. We plan to put down payment together, get a hard money loan, rehab and then sell properties. I am an experienced buy-and-hold investor and have been doing this for a few years. But this would be my first time fixing-flipping properties. I have a full time W2 income (not related to real estate) and do my investing part-time.

I have been reading online, and there seems to be a chance that IRS can label us as a "dealer" if we flip a few properties in a year, and then we can be subject to the 15% self employment tax. We would like to avoid that from happening. Hence I would like to ask experienced folks on the board who have been flipping homes - what can we do to avoid being given the "dealer" status by the IRS? Do we need to use entities (like LLCs, C or S-corps, etc) to overcome  this?

Any information on this would be greatly appreciated. Thanks everyone.