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Consider this scenario…
• You buy a property
• You fix up the property
• You sell the property
Sounds pretty straightforward doesn’t it?
Well, believe me, it’s not!
You see, depending on the facts and circumstances relating to your sale, the IRS will determine your tax status.
Why does this matter? Because the IRS’s decision on the status of your sale will have a huge impact on your tax bill!
To be an investor or a dealer? That is the question.
Investor status: It’s often advantageous to claim that you’re a property investor, rather than a dealer. That’s because the property sale produces long-term capital gains. (I’ll have more to say on the subject in my complete article!)
Real-estate-dealer status: If the IRS considers you to be a property dealer, you face being responsible for ordinary income and self-employment taxes. This can be an expensive proposition!
So how do you determine the status your sale?
No easy answer here.
This means you and your accountant will have to consider all the facts and circumstances involved and prepare a defensible position if the IRS comes to call.
IMPORTANT…
In this short email, I’ve only dealt briefly with a complicated subject.
So don’t stop here. Now’s the time to learn more about how to save money and headaches. It’s easy…