There are many different answers from many different people on this one.
I would seek the advice of an attorney or accountant.
The answer that I have gotten, that makes the most sense to me...from other investors is:
"Yes you can be pegged with dealer status by the IRS. If you take title to every property you're wholesaling. If you're wholesaling properties you shouldn't have to take title to the properties (except on certain occasions, where you're having trouble wholesaling it). I am not too worried about it, I don't know any wholesalers who have been pegged with Dealer Status.
Definately seek advice about it, especially if you're dealing in the capacity of a dealer...there might be some advantages.
Dealer status is nothing to be proud of. It means you do deals for a living and therefore pay ordinary income tax on your profits. The key to the classification is the "intent". It can vary with each transaction. If you intend to hold the property as an investment-you are not a dealer. If you intend to "turn the property" for a quick profit-you're a dealer.
I have an entity which just flips properties. (I'm doing less and less in this LLC). I'm taxed and classifed as a dealer. I'm taxed at ordinary income rates.
I have another entity which holds my investment portfolio. I hold these properties for a minimum of one year and one day. Preferably longer. I'm taxed at long term captial gains rates.
There are many different answers from many different people on this one.
I would seek the advice of an attorney or accountant.
The answer that I have gotten, that makes the most sense to me...from other investors is:
"Yes you can be pegged with dealer status by the IRS. If you take title to every property you're wholesaling. If you're wholesaling properties you shouldn't have to take title to the properties (except on certain occasions, where you're having trouble wholesaling it). I am not too worried about it, I don't know any wholesalers who have been pegged with Dealer Status.
Definately seek advice about it, especially if you're dealing in the capacity of a dealer...there might be some advantages.
JB
Dealer status is nothing to be proud of. It means you do deals for a living and therefore pay ordinary income tax on your profits. The key to the classification is the "intent". It can vary with each transaction. If you intend to hold the property as an investment-you are not a dealer. If you intend to "turn the property" for a quick profit-you're a dealer.
I have an entity which just flips properties. (I'm doing less and less in this LLC). I'm taxed and classifed as a dealer. I'm taxed at ordinary income rates.
I have another entity which holds my investment portfolio. I hold these properties for a minimum of one year and one day. Preferably longer. I'm taxed at long term captial gains rates.
Homebuilders would be considered dealers since they are not holding the houses they build as long term investments.
thanks for the replys :-D