I am a real estate agent, I flip some properties in 2010. One of the property I bought , after the fixup I sold it as seller finance deal in 90 days. I need advice on if I may claim as a real estate professional or a real estate dealer that I have to report the whole gain even though I only receive installment payments down the road . :oops:
Typically a seller finance transaction is treated as an installment sale. Also if you are a dealer (which likely you are) this will be ordinary income as opposed to capital gains.
My gut feeling is that because you are an agent and in the "business" that your tax professional is going to tell you that you have to pay the gain in the year of the sale. There may be a rule that you are allowed so many properties, in your state, before this comes into play. You need to check with a tax advisor.
Typically a seller finance transaction is treated as an installment sale. Also if you are a dealer (which likely you are) this will be ordinary income as opposed to capital gains.
Charles-I am under the impression that the "dealer status" is what causes you to have to pay the capital gain in the year of the sale. I know Joe Home Owner who just seller finances one property is not subject to the capital gain and his sale is treated as an installment sale and they are allowed to avoid the capital gain but, my adviser says that if you are doing this as a dealer that you are then subject to capital gains. Are you certain that I am wrong here?
Marc, thanks for the nudge. The issue primarily is is the OP a dealer. It sounds like he might be, but I don't really have enough facts. As a dealer, this is treated as inventory and you would be right that the income would be taxable in the year of sale rather than when received. The income though is not a gain but is treated as ordinary income.
A business that is not inventorying RE and a real estate investor could use the installment method to report a gain when payments are received.
I am a real estate agent, I flip some properties in 2010. One of the property I bought , after the fixup I sold it as seller finance deal in 90 days. I need advice on if I may claim as a real estate professional or a real estate dealer that I have to report the whole gain even though I only receive installment payments down the road . :oops:
If he bought the property with the intention of making money as a PROFESSIONAL, and then turned around and flipped it using seller financing, I am not sure how he could ever argue that he is not a dealer. I am not sure what other facts you would need unless I am missing something in which case, my CPA better be on the look out for one pissed off client. Charles gets 2 votes and I get nothing for telling it like I see and live it?