Difference between a real estate professional, a dealer in real property and an investor in real estate for tax purposes - John R. Dundon II, Enrolled Agent
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Difference between a real estate professional, a dealer in real property and an investor in real estate for tax purposes

23 Nov Difference between a real estate professional, a dealer in real property and an investor in real estate for tax purposes

Posted at 00:00h in Rental Real Estate by
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A real estate professional must spend more than one half his/her time on ‘real property business.’  Unless the real estate professional ‘materially participates’ in rental activity losses are passive.

A real estate dealer of real property sells and buys properties on a frequent and substantial basis and usually carries an inventory of properties for sale.  Losses are fully deductible.

A real estate investor buys and sells properties only occasionally.  The property is considered a capital asset and gains are reported on Schedule ‘D;.  Losses are limited to $3,000 annually.

There are 2 questions to ask in determining if there might be a dealer issue:

  1. Did the taxpayer buy or sell more than 5 properties in any one tax year?

  2. Were there multiple property transactions originating from 1065’s or 1120’s that are closely held by the same taxpayer?

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