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Dealer Status

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  • #4921
    Avatar of anonymous
    anonymous
    Member

    Does anyone know how the IRS defines a Dealer? Other than paying short term capital gains tax, what negative tax implications are there?

    Does a Land Trust avoid us getting tagged with the Dealer Status? I read on a previous post that property in a Land Trust is considered personal property not real property and the Dealer Status onlyl applies to real property?

    Thanks

    #26174
    Avatar of scott
    scott
    Member

    I think you have to buy and sale real estate within two years a certain amount of times to be a dealer. With a landtrust you as an investor beneficiary neither buy nor sell real estate.

    #26175
    Avatar of scott_l._moyes
    scott_l._moyes
    Participant

    Keep this in mind… you are only Acquiring an Interest in a Trust, not a Property.

    #26176

    General speaking, because each instance could be treated differently, if you buy propery strictly with the intent to sell it, you are considered a dealer. Thus if you specialize in buying property to rehab and then sell in the traditional sense, or if you buy land, then subdivide and sell the lots, you could be viewed as a dealer.

    However, If you are using the PAC Trust or EHTrust, you are transfering personal property not real estate. I am not a lawyer or accountant (My wife does, however, do taxes specializing in real estate taxes for investors).

    #26177
    Avatar of mtnwizard49
    mtnwizard49
    Member

    Scott and Scott were right on with their answers. Intent has NOTHING to do with it. If you buy and sell a certain number of real properties, you are a dealer. We don’t buy and sell real property. We’re not dealers. We have no fear of being considered dealers.

    Rich, you say you have not completed a deal yet, yet you contradict Scott who has completed hundreds. Convince me that I should put more value in your expertise than in that of Scott Moyes.

    #26178

    excuse me? I am afraid in the eyes of the IRS intent has EVERYTHING to do with it. I have a good friend who is auditor with the IRS. I suggest you contact them and verify what you tell people.

    No, I’ve done no NARS deals yet, though I will eventually.

    I frankly am not going to use these discussion boards to get in a he says, she says argument over who knows what more than whom.

    I respect Mr. Moyes because I am told through reliable sources he is doing deals regularly, thus I respect his opinion, though I have never met him and never done a deal with him.

    While I suspect you may have done 1 or 2 NARS deals yourself, I have no proof of it, yet I am willing to accept your 2 cents worth in response to any post I make. I personally do not get off on belittling people so I can only wish you a GREAT DAY!!

    #26179
    Avatar of mtnwizard49
    mtnwizard49
    Member

    Rich,

    I was certainly not trying to belittle you but oftentimes new members come on here with “problems” they think they have discovered. Bill set up NARS LONG LONG ago and, believe me, these same issues came up and have been dealt with in the 1990′s up to the present. The dealer issue is not an issue. Good luck to you and yes I’ve done quite a few more than 1 or 2 deals.

    #26180

    Gary,

    my original post was actually a response to Dancer53, I suppose it should have been posted as a reply to his message, rather than at the end, I am not real hip to protocol or the way things work on various websites, my apologies if it was mis-read.

    If you re-read the post you will see that I am not disputing anyone, merely stating the facts as I know them as pertains to the question concerning dealer status.

    I was not disagreeing with Bill’s system or anything the 2 Scotts had said, as a matter of fact, I believe I agreed.

    While you may not be belittling (sp?) me, it sure came across that way. I’m a big guy with broad shoulder who does not worry about disagreements or differences of opinion, though I would hope we are all professionals here. Let us not forget the boards are also open to public view, when we are asking our questions or making our comments.

    Thanks for all your input. I have read many of your comments on older posts and can see that you have a grasp of the system. I’m new, ask lots of dumb questions, and probably annoy the heck out of you ‘old timers’, and have no doubt some day I’ll be full of snappy comments for the ‘new guy’, though I, at least, hope to be as helpful as possible.

    Now quit reading the boards and get out there a close some more deals!!
    Thanks
    Rich

    #26181
    Avatar of anonymous
    anonymous
    Member

    Thanks to all who responed to my questions regarding Dealer Status. It seems like the pivital issue is weather or not the IRS agrees that property held in a Land Trust, with me having a beneficial interest in the Trust, is personal property rather than real proptery. Does anyone know the section of IRS code that states this definitively?

    In addition, if you are buying and selling personal property on a regular and short term basis, for example buying clothes at a thrift store and then reselling them at a garage sale. Or buying broken bikes, fixing them and reselling them. If either of these activities was your primary source of income, wouldn’t you be considered a dealer?

    Thanks
    Dancer53

    #26182
    Avatar of dbhenderson
    dbhenderson
    Member

    How could I ever be a dealer when I don’t ever buy anything or ever sell anything?

    #26183
    Avatar of mtnwizard49
    mtnwizard49
    Member

    http://user148333.websitewizard.com/what-does-the-irs-say.html

    Tennessee and Louisiana do not recognize the trust as personal property as they don’t accept the Doctrine of Equitable Conversion. There has been some recent discussion about New York which you may want to research.

    #26184
    Avatar of anonymous
    anonymous
    Member

    Gary, thank you for the IRC#163,167. Do you know which IRC states that property held in a Land Trust is considered personal not real property? If we can find that one I would feel pretty confident about not getting tagged with the Dealer Status label.

    Dancer53

    #26185
    Avatar of scott_l._moyes
    scott_l._moyes
    Participant

    @mtnwizard49 wrote:

    Rich, you say you have not completed a deal yet, yet you contradict Scott who has completed hundreds. Convince me that I should put more value in your expertise than in that of Scott Moyes.

    Gary, forgive me but I’m either missing something or you miss-understood. I do not see any contradiction here. I think we are saying the same thing.

    #26186
    Avatar of jerry carey
    jerry carey
    Member

    Dancer53 … you have several misconceptions about NEHTrusts!

    You said:

    Do you know which IRC states that property held in a Land Trust is considered personal not real property? If we can find that one I would feel pretty confident about not getting tagged with the Dealer Status label.

    First … The IRS considers property held in a NEHTrust as Real Property (Realty) not Personal Property (Personalty). As previously replied the IRS under Federal Law allows RB active tax deductions and Other Co-Beneficiaries passive deductions.

    Your questions about the NEHTrust property being converted from Real Estate (Realty) to personal property (Personalty) is accomplished through the “Doctrine of Equitable Conversion”. This is accepted under State law … not Federal Law. It is an accepted “Common Law” Doctrine not prescribed or written into “One” law or Statute! You can read about this Doctrine in the “BIG” book Chapter six pgs. 81 & 84 footnotes #6 & #11 give you legal Statute references!

    You asked:

    In addition, if you are buying and selling personal property on a regular and short term basis, for example buying clothes at a thrift store and then reselling them at a garage sale. Or buying broken bikes, fixing them and reselling them. If either of these activities was your primary source of income, wouldn’t you be considered a dealer?

    No … your considered Self-Employed and your income is Taxed as Ordinary Straight Income!

    You asked:

    Does anyone know how the IRS defines a Dealer? Other than paying short term capital gains tax, what negative tax implications are there?

    Other than paying Ordinary Straight Income tax … if you were dealing in Realty … not Personalty … if you had too many R.E. transactions … you might require Realtor licensing under some state’s laws.

    Jerry Carey

    #26187
    Avatar of anonymous
    anonymous
    Member

    Thank You Jerry. You were right. I did have misconceptions. I own property in FL, AL, MS and GA. So I guess regarding the “Doctrine of Equitable Conversion” I would have to research each state’ law to determine if each state recognizes the Doctrine, correct?

    As to paying Ordinary Straight Income Tax under the Dealer Status, it is not ordinary tax that I am concerned about, it is the self employment tax that I think I would get hit with i.e. both sides of SS tax, Medicare, State Disability etc., etc. Wouldn’t all of those taxes come into play if I get tagged a Dealer? Or do I avoid that completely since as per a previous answer, I only hold a beneficial interest in the Trust and therefore it is the Trustee who sells the property not me. Do I have that right?

    Dancer53

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