Tax Ramifications for Wholesaling

[Andy Lightner]

all,

i am in virginia and ready to get my first wholesale in the books, what are the tax ramifications for wholesaling? I cant seem to find this info anywhere????

[Bill Walston]

Hi Andy,

If your only real estate transactions are wholesales, you WILL be classifed a "dealer" by the IRS. As such, your income will be classified as self-employment income and in addition to your regular income tax you will be subject to the 15.3% self-employment tax. Dealer profits are not entitled to long-term capital gains rates regardless of the length of time the property is held. (The property is considered inventory.) If you buy/sell in your name as an individual, you may also have a higher audit risk since you would have to file as a sole proprietor. That's why we recommend that wholesalers use a business entity such as an LLC or corporation for his/her real estate transactions.