Discussion Forum

Randy Hughes
Master Advisor-39 years of experience

Re:Dealer

Monday, February 12 2007 08:27 PM

Phiho,


1) Is it true that if you flip 3 properties in a one year period, you are labeled by the IRS as a Dealer?   NO, THIS IS NOT TRUE. THE IRS DOES NOT HAVE A SET NUMBER OF PROPERTIES TO LABEL YOU. I THINK IT RELATES MORE TO YOUR OVERALL ACTIVITY IN THIS BUSINESS. FOR EXAMPLE, IF YOU ARE BUYING AND HOLDING 5-10 PROPERTIES PER YEAR AND FLIPPING ONLY 3 YOU CAN ARGUE THAT YOU ARE NOT IN THE BUINESS OF "DEALING", BUT THAT IN THE COURSE OF YOUR BUSINESS YOU DO SELL A FEW EACH YEAR. IF ALL YOU DO IS FLIP 3 PER YEAR THEN I THINK YOU ARE MORE AT RISK TO BEING CLASSIFIED AS A DEALER.

2) If so, do we avoid being a "dealer" by buying properties as a corporation?   THIS WOULD NOT AVOID THE PROBLEM, JUST KEEP THE DEALER CLASSIFICATION AWAY FROM YOUR PERSONALLY OWNED PROPERTY (ALLOWING YOU TO BENEFIT FROM THE TAX BENEFITS THAT DEALERS DO NOT GET)

3) If we buy properties as a corporation or LLC, do we just put XYZ LLC in place of a buyer's name on the contract?  YES   In terms of qualifying with a lender, what is the process when you have 3 members in the LLC?   DEPENDS ON THE LENDER, BUT PROBABLY THEY WOULD WANT ALL MEMBERS TO SUBMIT FINANCIALS AND GUARANTEE THE LOANS.

4) If we buy a property by CASH, can we use the name of the Land Trust in place of a buyer? YES, USE THE NAME OF THE TRUSTEE AS THE BUYER OR USE YOUR PERSONAL NAME AND THEN ASSIGN THE CONTRACT TO YOUR TRUSTEE PRIOR TO CLOSING.

phiho 949.378.5352
CA investing realtor

Randy Hughes

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