Dealer status paranoia: solution? - Posted by New_To_IL

Posted by JPiper on February 06, 2001 at 18:30:53:

I thought your original post was clear?.it was just wrong. ?Quick Flips? are not eligible for 1031 treatment. Whether the ?quick flip? was performed by an LLC, Corp, limited partnership, etc. would have no bearing in terms of being eligible for a 1031 exchange. Unless of course by ?Quick Flip? what you mean is a property you?ve held as an investment property?.not the common definition of ?Quick Flip?. And hopefully held for at least one year?and preferably two to help establish your intent with the property.

If anything I thought your second post was especially unclear. I would be interested to find out for example why you sell with a ?wrap? in a limited partnership where the taxes (along with self-employment taxes if a dealer) would flow through to the limited partners in the year of sale. Better yet, how you can do a number of wraps (sales) without becoming a dealer. Or better still, how you can have a number of entities that are not ?controlled? entities.

Probably not the venue for an explanatory post of this type?.but then again, not a post designed to clarify much either.


Dealer status paranoia: solution? - Posted by New_To_IL

Posted by New_To_IL on February 06, 2001 at 08:44:39:


Although I have a couple of rentals, I’ve been thinking about learning to do light-difficulty rehabs in an attempt to raise some cash. After reading all of discussion about ‘dealer’ status, I’m now almost too paranoid to do anything.

I read lots of discussion about trying to avoid the ‘dealer’ status, but now I’m wondering, can’t I just admit that yes, I want to resell this property and put it on the schedule C in the first place? Would this cause the IRS to come crashing in and try to take back depreciation on my rentals? What about the one that I lived in for 4 years before moving out of state?

Or, would putting rehabs on schedule C from the git-go actually help protect my rentals, because it would be clear that I was trying to ‘do the right thing’ from the beginning?

A person is allowed to own both investment and dealer property right? I’ve read the comment ‘The IRS likes to lump it all together…’ Was this AFTER an incriminating audit, or has this happened to people even when they did report everything correctly?

I know the dealer discussion is probably wearing thin to some, but is this, perhaps the ‘real’ solution? At least it would avoid penalties and interest, right?

Re: Dealer status paranoia: solution? - Posted by JHyre in Ohio

Posted by JHyre in Ohio on February 06, 2001 at 10:30:37:

You can mix flips and holds in the same entity…but as a pracical matter, the IRS may try to classify the whole business as a “dealer”. Keep seperate entities for each respective activity and document the sales activity, promotion, etc. or lack thereof in each.

John Hyre

Re: Dealer status paranoia: solution? - Posted by will

Posted by will on February 06, 2001 at 10:00:54:

use a separate legal entity for flips

Re: Dealer status paranoia: solution? - Posted by John Burely

Posted by John Burely on February 06, 2001 at 13:26:39:

For my Quick Flip type properties I use LLC(s). Although my tax implications are nominal because virtually all my resales are 1031(s).

Good Investing,

John Burley

Dealers can’t exchange 1031… - Posted by David Krulac

Posted by David Krulac on February 06, 2001 at 14:26:28:

nor can they depreciate property, nor can dealers use installment sales treatment.

Re: Dealers can’t exchange 1031… Clarification - Posted by John Burley

Posted by John Burley on February 06, 2001 at 15:08:43:

Dear David,

Thank you for your post. Allow me to clarify, I work with several tax entities (not a controlled group). There are various reasons for this (different ownership of properties, different purposes among portfolios controlled, to spread risk by not allowing any one entity have too many assets, and to prevent any one entity from being placed in a situation of becoming a dealer).

Thus, the reference to a LLC for 1031 exchange was a simple explanation of what I meant.

My longer term properties (wrap and buy and hold) are primarily held in several LPs with C-Corp as the GP, with a in state C-Corp to manage the various LP intersets via a sandwich lease. We have successfully been using this strategy for a decade.

Talk with you later.

Good Investing,

John Burley