Tax Lien Income Classification
I am interested in investing in tax liens and I'm curious how the revenue from tax liens is reported to the IRS. Are there any IRS documents associated with purchasing tax liens (even if they are redeemed before foreclosure)?
I figure it's a short-term capital gain (if redeemed in less than a year) then the revenue is taxed at my earned income bracket tier. I figure if I have to pay taxes on it at some point anyway and have to pay taxes on it as earned income anyhow (whether I have a private entity for transactions or use my self-directed IRA), then I would rather have the tax lien in a more liquid and accessible entity if the lien go to foreclosure and I acquire the property.
I realize that all of this is subjective and depends on investment and tax reporting strategies, but I'd like to hear from other people's experiences.