Do I need a license ? Am I a dealer ?’

After all those ‘flip this house’, ‘fixer upper’, ‘house hunters’ TV shows, you might wantAnibal-Affiliates-RealtyNetWorth-AllOverUSA-DC-night to consider if you’re a ‘dealer’. Why ?

The state licensing board may classify you as being a professional and in need of a license and continuing education. At the same time, the IRS may want to treat your income differently if this is a ‘full time job’, what ever that is. And just what is it? This is a sit down style appointment, but I will give you some quick things to consider:

Having completed 1000’s of 1040’s, and many 1120/ 1065 and 1120S returns let me expand a bit. If you are an unlicensed individual, buy/sell in your name/ and make 100% of your living from the profits of real estate transactions year after year, IRS and Dept of Licensing will both want to classify you as a dealer. Now consider clients I have where I set up an entity for them, the entity owns the properties, a real estate broker handles the buy/sell brokerage, and the person takes a ‘reasonable’ salary & gets a W2 for management/ labor. Is the individual a dealer ?

What about folks that I buy/ sell/ lease/ resell/ subdivide using a broker and they do little other than come to closings ? Dealers ? What if its 100% of their income ? or 49% ? or 10% of their AGI ?

I’ve walked thru these audits and seen the IRS argue a position. I’ve also argued my position w/ IRS agents teaching at MSU Tax School and they’ve taken the opposite position as the auditor was taking. Sooo, there are licensing and taxation issues.

The IRS is far less forgiving then it once was. Here’s my default answer: “For any business decision speak w/ your CPA, lawyer, insurance agent, and banker. Each will have different points to ponder and words of wisdom.

Bottom line.anibal-affiliates-realtynetworth_deeding-property-to-children-b

  • The when/ how to transfer should involve your accountant, lawyer, insurance agent, banker/lender at a minimum.

As I’ve told clients for decades: “You’re not dealing with a candy bar.”


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