Schedule C vs Schedule D

[Davc]

That is not SE income, unless it can be proven that you are a real estate professional. Explain the difference.

The term "real estate professional" has nothing to do with what schedule an activity is reported on or whether it's subject to SE tax. It relates to the deducability of Schedule E losses that would otherwise be traeted as passive.

[Burke]

In the situations we have been describing, it is definitely a business. Flipping houses, rehabs, land subdivisions into lots all make it so, even if it is done "on the side" from a regular job. The 5-yr ownership rule comes into play if you are trying to qualify under Sect 1237 rules. It refers to land ownership, and the person cannot have held any other real estate for sale in the year it is sold, nor can he have made any improvements on it, and he has to have owned it for 5 years. See Tax Code section for more details. As the previous poster said, buying and holding capital assets for appreciation is a lot different than improving them for resale. That is the difference.

[Kram BergGold]

Enjoying this thread

Here are my thoughts on this topic after considering all opinions on this thread. There is no rule about this. Each case has to be judged on facts and circumstances. A person in the real estate business has a lower threshold than someone who is not in the biz to be moved to Schedule C. The amount of time and money spent rehabbing is a consideration. The less of these invested in the project the more one can argue D. The time the project is owned is also a factor. The shorter the time owned before sale the more logical it is to be C. A parallel to this is the day trader. Schedule C day traders can have some stocks that are Schedule D because they were purchased in a separate account with the idea of holding long term. I would think a real estate investor flipping properties on Schedule C could have a purchase with the rental income on Schedule E for a few years and then sale on D. This situation is just never black and white. I only suggest that we charge big bucks for anyone involved in this type scenario for obvious reasons.

[joanmcq]

Flipping houses puts you in the business of renovating real estate. There is no idea of generating income from renting it, but in buying and selling. That is a business with inventory whether it is houses, or buying and fixing up and selling bicycles or anything else.

RE Professional status does not put rental income on the Sch. C. It simply eliminates the limitations on taking losses on rental RE against ordinary income.

[JoshinNC]

I'd like to see some court decisions relative to this

for my review. I'd be willing to argue this with an auditor under certain circumstances unless a clear precedent had been previously set.