I have been flipping houses for 3 years now. I have been doing this under a c-Corp. I have been taxed as a dealer. I started a new LLC to buy and sell house, plus rentals. I learned about dealers vs investors and the taxes of each. Now I want to buy houses, rent them out for a year or two and then sell them. Of course I want to be treated as an investor, not a dealer. I have read what the IRS looks at for determining your status but am looking for more insight. Do any of you do this. What has and has not worked for you in maintaining your investor status.

I am looking to see how far I can push the envelope, or what others have done.

If I buy a house for 17k, put 13k into it and could sell it for say 100k here are my options.

1 Sell and walk away with 60k gross profit. I would pay around (25-28% fed tax + 8% state tax + 15% self employment tax) on that 60k. I keep 31k and can reinvest the money.

2 I could mortgage for 80k and rent it out for say 1-2 years. Not make much of any money on the rent over the year, maybe 2k. That’s cause of the high mortgage. If I sold then I would pay (15% cap gain tax + 8% state tax) on that 60k. I keep 46k, and while I am waiting that year I got 50k to work with from my mortgage. I have a local bank the charges me only around $700 for closing costs.

I have increased my profit by 15k and it cost me virtually nothing. I may have some minor rehabbing cost at the end of the renal period, along with the mortgage closing costs. However I get my mortgage money as a line of credit, when I want it. It is always easier to find a renter than a buyer. I can list the property while it is still being rented, reducing my carrying costs. I believe short term flipped properties, although empty and cleaner, sometimes have a stigma attached to them. Therefore they can bring in less money than a equal house being lived in.

So the $s say my goal is flipping but play the renting game. I guess the big problem I see is reporting to the IRS a 2k income, followed by 70k capital gain. How many times can I do that in a year? I also have a couple of rentals that are just that but can’t imagine that would buy me much. Plus each deal is theoretically treated individually.

Does anyone have any stories about being force into dealer status on a particular deal and if so, what were the circumstances?