Am I a business or an Investor? Can I decide?

3 Replies

Doing my own taxes this year (hopefully), as I usually do. I have only one property sale to claim. Can I decide on my own whether or not I'm a business or an investor? 

* Purchased in 2014, sold in 2015 for a profit. Owned less than 1 year. This was my first investment property purchased

* Never lived there. purchased with intent to sell

*Now own one another property that is under renovation

It seems easier to simply call it a business, deduct the expenses, and pay whatever i must, rather than deal with depreciating things. Is there a reason why this isn't advisable , other than the percentage that I'll end up paying

@Summer Segeleon I recommend not doing your own taxes and speaking with a CPA.

Investor vs. Business owner will make a great deal of difference. If classified as a dealer (business owner) your flip will be subject to your ordinary rates plus SE tax (15.3%).

If an investor, you avoid the SE tax.

Generally if you establish a pattern of flipping, you will need to report your sales as inventory subject to SE tax. If your property is considered inventory, you lose access to a lot of tax efficient ways to dispose of the property.

What is your intent on the property you have now?

Honestly, @Summer Segeleon if you are asking these types of questions, although you want to do your own taxes, I would consult a CPA. There are several here in the forum that may be able to recommend someone in your area.

These are some CPAs here on the forum:

@Brandon Hall

@Steven Hamilton II

@Brandon Hall I intend to sell the house that I am renovating now.. and will never live there. I also have another job, and work lots of hours there. I know I should just call a CPA , and I will certainly need one in the coming years. I just figured that this year, since it's just one sale, I could probably get it done myself and save the expense. 

Is it safer for me, then, (IRS -wise) to just call it a business (inventory) , and deduct the expenses.. I will be charged at "ordinary income" rates anyway, as I held it less than a year. The IRS won't be upset with me for calling it a business, will they?  It kind of works the other way around, doesn't it? They don't want anyone screaming Capital gains when they should really be filing as a business.