1099 requirements

[OldJack]

I admit this is a grey area of the law. Where do you draw the line?

I draw the line where substantial improvements are made. If this were a case where two guys buy a house, clean up the yard, do some painting and other minor repairs, sell the place for profit without ever doing it again, then I would call it investment property.

I agree there is a grey line ( actually undefined) between investor status and trade or business status but of course there is a large difference in the tax result. Drawing that line should be on the purpose of the activity and the facts of the activity rather than a substantial dollar amount of improvements.

Assuming a one-time investment, why should there be a difference between the "individual's" tax status if he purchases mothers $100,000 piece of real estate requiring no fix-up for investment verses mothers $75,000 real estate that requires $25,000 fix-up before sale. Either way the individual has a $100,000 cost personal capital asset that can be sold (1040 Sch-D), rented, or used for whatever purpose the individual wishes. Its not until you see activity, intent/purpose, and results that you can say he was not an investor but is/was a trade or business (unless the taxpayer has a previous record of business activity in that line of work).

I am still looking for your cite and definition of an "Investor".

[OldJack]

What if you started with $100,000, invest another $70,000 buying and selling daily and at the end of a six month period you have a gain of $80,0000, does this have any impact your status?

Of course Jesse. I was only being sarcastic using 1 share of stock bought "for profit" (investor rather than a trader) as the original post was for 1 house bought "for profit". Thus to point out that it is not the "for profit" that determines the status of the taxpayer although that is a factor. Both of the assets at the time of purchase are code §1221, "Capital asset defined" section of the code (1040 Sch-D asset). Note in the quote "whether or not connected with his trade or business". It then goes on to say what is not a capital asset under §1221 and later we find those trade or business assets are capital assets under code §1231, 1245, 1250, etc.

Sec. 1221. Capital asset defined

-STATUTE-
(a) In general
For purposes of this subtitle, the term "capital asset" means
property held by the taxpayer (whether or not connected with his
trade or business), but does not include -
(1) stock in trade of the taxpayer or other property of a kind
which would properly be included in the inventory of the taxpayer
if on hand at the close of the taxable year, or property held by
the taxpayer primarily for sale to customers in the ordinary
course of his trade or business;
(2) property, used in his trade or business, of a character
which is subject to the allowance for depreciation provided in
section 167, or real property used in his trade or business; ..........
..............