Posted by Stacy (AZ) on April 10, 2002 at 11:09:37:
Frank, this question will prbably get a quicker and more worthy response if you post it on the legal forum. I did read a post from John Hyre, stating that the IRS will allow properties that are passive (hold) to exist with dealer (quick flip) properties in the same corporation. According to what I remember in his reply, he stated the dealer properties would not force the passive properties to be exempt from 1031, long term capital gains treatment, etc. This surprised me, since I’ve always read it’s best to keep dealer properties in a corp, and separately hold rentals in an LLC. But, as I said, I’d post this in the legal forum to get the straight skinny from the experts.
Will flipping and rehabbing in a corp keep the properties that I hold for long term passive income as an individual, trust, LLC, etc. (basically, my rentals)from losing their passive income status and all the tax benifits that come with them?
In other words, if I flip or rehab properties as a corp or LLC full time and make substantial money, will the IRS call me a dealer and try to throw all of my properties into one category? That would really hurt. OR, do they regard the corp as a totally different entity even though it is real estate related and I would be the only shareholder.
Certainly a few of you rehabbers must have a few keepers that you are holding for long term returns… but then again, it seems that holders and flippers/rehabbers have different ways of viewing things. This isn’t everyone of course, but most savvy investors I talk to who flip/rehab properties want nothing to do with management or landlording. I happen to want both … anyone out there who already does both? Are you regarded as 2 totally separate entities?