Real Estate Dealer

[sdiazea]

New Client !! Real Estate Dealer !!
He says former tax prep told him when he flips a property it is ordinary income. But, if he holds the property a year or more it would be capital gain.

Soooo!! If that is true, then every property turned over in less than a year is a Sch C item but if it is a year or more it goes on Schedule D??? Can it be??

Thanks,
Sharon

[JG EA]

Second hand

Information that comes 2nd or 3rd hand isn't very reliable. I've had clients tell me what I told them and it wasn't even close to reality.

EG: I told a client 4 times in the space of 5 minutes what the 125 in box 14 on their W-2 meant. I knew they weren't getting it. . Today she called me up to say that 125 means pretaxed .....

Also this year I've had several clients tell me that I said they couldn't deduct non-cash contributions any more! Yikes.

Can you imagine what their friends think, what their personnel department thinks when we are quoted?

[Gretel]

Und die Moral von der Geschicht'....

And the moral and lesson from these experiences: Never trust or believe anything, which is quoted by someone, not just in tax business.....

[sdiazea]

Information that comes 2nd or 3rd hand isn't very reliable. I've had clients tell me what I told them and it wasn't even close to reality.

EG: I told a client 4 times in the space of 5 minutes what the 125 in box 14 on their W-2 meant. I knew they weren't getting it. . Today she called me up to say that 125 means pretaxed .....

Also this year I've had several clients tell me that I said they couldn't deduct non-cash contributions any more! Yikes.

Can you imagine what their friends think, what their personnel department thinks when we are quoted?

Well! I went to the internet searching and GUESS WHAT!! It is so. Real Estate Dealers are schedule C businesses and do pay SE tax. What I can't find is the "if property (which in this case would be inventory) is held a year or more it is reported on sch D". That has to be wrong. If it is inventory this year it is still inventory next year. Don't you think??

[taxmandan]

If it is inventory this year it is still inventory next year. Don't you think??

If this occurred only once, flipping a house, and it was owned for more than one year, I might consider putting it on Sch D. But, if there have been or will be numerous houses flipped by taxpayer, then I agree with you they are all inventory regardless of the time owned.

[JoshinNC]

If the taxpayer spends more than half his work hours "dealing" houses

it's a Sch. C business, irregardless of the amount of time held. However, it would also be possible for a real estate dealer to have both Sch. C house sales and Sch. D sales. For example, if he/she regularly buys houses in their geographic region, makes repairs and sells at a profit this goes on their Sch. C. But, maybe they buy a house in FL, or HI, or CA, make no repairs, hold it for a year and sell it. I would consider this a Sch D acitivity.

The question is, what was the intent of the seller and did their actions during ownership coincided with that intent. If you feel comfortable in supporting the position you take under scrutiny, take that position. If not, determine what you find acceptable, notifiy the client and then it's their decision whether or not to use your advice.