IRS rules on "Dealer Status" can come into question For Sale By Owner. See my blog, below
"Many investors that buy and sell real estate want to know when they are crossing the fine line from being an investor to becoming a dealer.
It is one of the â€œgray areasâ€ of IRC Section 1031. A dealer can have properties that he uses for his business, but he is also entitled to be an investor like anyone else. The best source that can be referred to are 9 points that the tax court used to determine â€œDealer Statusâ€ in the Klarkowski court case.
These 9 points can help an investor to determine if they fall into the dealer category:
1. The purpose for which the property was acquired.
2. The purpose for which the property was subsequently held.
3. The extent of improvements made.
4. The frequency, number, and continuity of sales.
5. The extent and nature of the property within the transaction.
6. The ordinary or general business of the taxpayer.
7. The extent of advertising and promotion for sale.
8. Whether the property was listed with a real estate broker or other outlets.
9. The purpose for which the property was held at the time of sale, as opposed of the time of acquisition. "
This is where you need a very good Real Estate attorney to help you with the gray lines.
In short, use a Licensed Realtor to buy most but SELL all of your properties.
Now the questions that come in are:
if this is a primary source of income( more than 50% of your income is derived from):
if you are buying and selling more than 2 properties every 3 years.
if you are FLIPPING, and NOT buy and HOLDING properties
Then most likely, YES you need to be a licensed Dealer. In many states that Dealer means you must be a Licensed Real Estate Broker, not just an Agent to buy and sell Real Estate for yourself.
DEFFINTLY you must be a Realtor if you are attempting to represent other individuals while buying and selling Real Estate.
Large corporations may be exempt when liquidating Real Estate holdings.
Tom Brady SFR, e-PRO, SRES GREEN BPOR
Licensed Real Estate Salesperson
Notary Public, Retired N.Y.P.D. Lt.
"We treat you like family!"
Charles Rutenberg Realty, Inc.
255 Executive Drive - Suite 104
Plainview, New York 11803