BiggerPockets

Is their any way around being called a dealer by the IRS. Like flipping properties under an LLC or some other entity. Could some please help me umderstand this one.

A good accountant will be able to classify your properties based on their merits, as opposed to a single classification for your business.

In other words, if you have 10 properties, 5 of which you flip and 5 of which you are holding as investment, your CPA should be able to get half the properties taxed at long-term capital gains (investments) and half taxed at ordinary income (dealer).

Without a good CPA, you run the risk of your entire business being classified as "dealer" and paying higher taxes on all properties.

Also, your CPA will recommend how to structure your business entities to support the way he will be claiming the income to the IRS when he does your taxes.

Thanks for all the info guys.

Originally posted by Curtis Brown

By the way what is the ordinary tax for a dealer?

It varies based on your total income. The more income you have, the higher your tax bracket, and the more income you pay.

In 2009, the highest tax bracket is 35%, so if you make enough money (over about $350K), at least some of that money will be taxed at 35%.

Also, keep in mind that your legal structure will also play a role in how much tax you pay. If you don't elect a corporate structure, you will also end up paying about 15% in self-employment taxes. If you elect the correct structure (for example, and LLC taxed as a corp), you can get around the self-employment tax for part of your income.