long term and short term gains and losses

[PayrollHRGuy]

I made no such assumption and in my post, I said both of you were making assumptions you should not be.

 

[Taxing Matters]

I made no such assumption and in my post, I said both of you were making assumptions you should not be.

I believe you forgot the word I underlined in my revision of your response.

I think Davew9128 did point out something important that TrustUser needs to know — that if the flipping is more than an occasional thing and something of a regular, continuous activity that the income becomes a business income with the homes that are flipped being treated as inventory rather than capital assets. So I'm glad for that. I just think that concluding it's a business activity off the OP's use of the term flip isn't really well supported. I'd want to see the history of the activity before making any conclusion on that for any client, and I'm pretty sure both Davew9128 and LdiJ would also want to see that if TrustUser was in their office asking how to treat this activity.

 

[TrustUser]

hey guys, i did not mean to start world war 3. this is the first time i have flipped any houses. so whether i do it on a continual basis, depends on how successful i am, compared to the risk and reward that i am taking.

i was at least hoping to make it some sort of consistent thing i do, to make some income.

 

[TrustUser]

i did think that because it was a capital asset, it qualified for long and short term gains, though

so if i am wrong about that, i do need to know

 

[TrustUser]

if i was in your office, i would not have thought of it as a business, though. i do own rentals, and other things. so with the remainder of the money, i was thinking i was making investments, not running a business. but that was just my own take, not necessarily how the irs would qualify it. so i would like to know how this is all looked upon.

all flippers that i know are all in business for themselves. where it is the only thing they do, and usually work 50 hours a week or more. that doesnt at all describe my situation

 

[TrustUser]

at this point, i have purchased 3 inexpensive properties (roughly all close to the same time frame). i just got the first one listed, and the other 2 will probably be ready in 1 month, and 2 months.

 

[TrustUser]

if it turns out that you guys think i am running a business instead of having investments, would that change if i kept each place for a full year, before i sold it ? even rented it out for a short time ?

 

[TrustUser]

also, i dont do any of the work. irregardless of how many properties i may get in the future, the following will not change.

my realtor finds a property for me. i buy it through an escrow that she establishes. she does all the leg work, in terms of dealing with the contractors, etc. if she has any questions, she can ask me. but i am very hands off. the last thing i want is a business that requires a bunch of my time - LOL. when it is ready to sell, she lists and sells it. it is my intention to spend as little time as possible. so no wonder i think of it as an investment, and not a business !!

 

[LdiJ]

also, i dont do any of the work. irregardless of how many properties i may get in the future, the following will not change.

my realtor finds a property for me. i buy it through an escrow that she establishes. she does all the leg work, in terms of dealing with the contractors, etc. if she has any questions, she can ask me. but i am very hands off. the last thing i want is a business that requires a bunch of my time - LOL. when it is ready to sell, she lists and sells it. it is my intention to spend as little time as possible. so no wonder i think of it as an investment, and not a business !!

At this point I would probably treat it as an investment. However, if you keep it up I would probably consider it to be a business. However, since you are so "hands off" I would probably recommend that you set up an S-corp. You don't want to be paying self employment tax when you are not doing most of the work. You could pay yourself a wage for the amount of time that you do spend working at it, and let the rest flow through to you on Schedule K1.

 

[TrustUser]

i am trying to make a little extra money, help keep people employed, and help the surrounding area. but i do not want to have it that involving on my tax return. i am certainly not gonna set up a special corporation.

if it becomes that involving, i simply wont do it at all - and return to making loans

since it was short term, i figured it would be just ordinary income. but i hoped i could get rid of my loss carryover, first - which it looks like i can do that

i may end up keeping the properties for awhile - i am guessing that will help me, with the eventual sales. plus i wont be doing nearly as many of them, so i should be able to do those as normal capital gains

thanks for the feedback. i will see what the rest think.

 

[TrustUser]

2 interesting points

1) if your participation is passive, you are more likely to be considered an investor as opposed to a dealer

2) if you hold it more than a year, you are safe from being a dealer, and can claim it as capital gains.

 

[LdiJ]

2 interesting points

1) if your participation is passive, you are more likely to be considered an investor as opposed to a dealer

2) if you hold it more than a year, you are safe from being a dealer, and can claim it as capital gains.

I agree with point number 1. Point number 2 seems somewhat logical, but I would like to know where you got the information.

 

[TrustUser]

just from research that i have done on the net

 

[davew9128]

2 interesting points

1) if your participation is passive, you are more likely to be considered an investor as opposed to a dealer

2) if you hold it more than a year, you are safe from being a dealer, and can claim it as capital gains.

Not sure I agree with either one as a blanket statement. I can think of instances where both statements could be factually accurate, passive and held for a year, and those aren't the results. That said, 1 is more likely to be true if you are the sole owner.

 

[TrustUser]

thank you dave, tm, ldij, payrollhguy, and all others who have contributed. i will always be the sole owner. i would prefer not to rent them out. but if you guys think that would reduce my chances of being considered a dealer, then i guess i might need to go that route.