If you buy a property, fix it up, and then sell it, is that property a dealer or an investor property?

 

The distinction is important because investors pay capital gains tax on the income, dealers pay ordinary income tax rates.

 

Here are five thoughts on this:

 

1. Periodically buying property, fixing it up, and selling it makes it look like dealer property. But when you seldom do this, the property can look like investor property.
2. If you hold the property for more than a year from the time of purchase to the close of escrow, investor status gives you tax-favored, long-term capital gains treatment.
3. When you buy and sell without fixing up the property, or when you buy and rent and then sell, you have strong investor attributes.
4. The fix-up, remodel, development, etc., give you dealer attributes.
5. The whole issue of dealer versus investor status is a facts-and-circumstances classification, and it’s a tough call.

If you are planning on buying an investment property and have tax questions, let us know.

Taxes and Investor Properties

 

*As always, these tax strategies should be discussed with a qualified tax preparer, tax accountant, or tax attorney before being implemented.*