Posted by The Frisco Kid on March 30, 2006 at 20:47:15:
Bo
Before you put the income from your license activities under a llc or an llp be sure to check with the state. Some states still don’t allow real estate licensees to operate under a llc or llp but they are coming around.
RE agent, ? automatically a dealer? - Posted by bo
Posted by bo on March 29, 2006 at 12:56:21:
My wife is pursuing her real estate license, and subsequently her brokers license. We currently buy rentals, and hold for several years, then sell. We also develop for our own personal holdings.
I am concerned about being mislabelled as a “real estate dealer” once my wife gets her license. The IRS site states that anyone who buys RE with the intent of reselling at a profit is a “dealer” not an “investor.” And once you get that label, all rent falls under self employment tax, and long term gains are ordinary income (IE. Not capital gains at 15%), and you can’t 1031…
This sounds fairly undesirable…
How does a real estate agent/broker, who by definition deals with property for sale, avoid this label???
Can an agent chime in here??? We have our properties in various LLC’s, and I’m not sure if that makes a difference…
I am guessing that I am somehow misinterpreting the rules here. I can’t believe that as a RE agent every property you personally buy/hold gets taxed as ordinary income. Huge difference paying 15% capital gains and 40% or so ordinary rate…
Insight appreciated…
To paraphrase:
When a real estate agent sells a property he owns, and has had for over a year…does he pay 15% capital gains or ordinary income tax???
Re: RE agent, ? automatically a dealer? - Posted by Natalie-VA
Posted by Natalie-VA on March 30, 2006 at 10:19:42:
Bo,
There’s a couple of guys on here (Randy, Dave T) that know a lot about accounting. I hope they’ll chime in.
I am a RE Broker and an investor.
I’m not sure where you’re getting that having a real estate license has anything to do with the tax treatment of your investing profits. Yes, if you buy a property with the intent to sell for a profit, you are technically supposed to be taxed at ordinary income tax rates.
We use an S-corp for our rehab/flip deals and an LLC for our rentals. When I collect RE commissions, they also go into the S-corp, but they have nothing to do with our flip profits.
I hope this made sense. I just don’t see how having the RE license affects dealer or non-dealer status.
Maybe someone who knows more than me will speak up.
–Natalie
Re: RE agent, ? automatically a dealer? - Posted by dutch
Posted by dutch on March 30, 2006 at 07:24:58:
Get a good accountant, try to find one that does the accounting for other RE investors and agents. best place to find this would be you local REI club.
However, overall, just seperate the 2 businesses. For your wife, it is best if she sets up an LLC for her “agent” activities. File with the RE Commission and Local Realtor board to DBA in the LLC name. Then she is an employee of the LLC. Commission checks from her broker would be made out to Sally Sue LLC, not to Sally Sue.
As for rentals, you need to have a seperate entity for that. You would created another LLC or Corp, “Slum Lords R Us LLC”, and hold your rentals in Trust with the LLC as bene.
Bingo, no dealer status to either of you personally.
Dutch
CYA. . . - Posted by NCPaul
Posted by NCPaul on March 29, 2006 at 20:11:58:
Call Your Accountant! I’ve had a RE broker’s license for several years and I’ve yet to go through or even hear about a class that would give me a clue about that one. Your accountant is the only one I’d personally trust in your shoes. Afterall if you get audited he’s the one who will be with you working through the mess.
Good luck