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
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:
Did the taxpayer buy or sell more than 5 properties in any one tax year?
Were there multiple property transactions originating from 1065’s or 1120’s that are closely held by the same taxpayer?