Why are the Fix and Flip investors are called Dealers by the Internal Revenue Service?

Why are the Fix and Flip investors are called Dealers by the Internal Revenue Service?

Did you know that Internal Revenue Service considers an investor who does Fix and Flip as a dealer? In this video today I'll talk about why does Internal Revenue Service, IRS considers a fix and flipper as a dealer and what the pros and cons you have or advantage or disadvantage you have because of that. Welcome to Wealthy Wednesday.

In a fix and flip, normally the homes are held for probably six months, four months, definitely less than one year. That's why it's called a dealing, property dealing, not a regular investment. So when it comes to paying the income tax, it does not qualify as a capital gain tax. To get a capital gain tax advantage, the property has to be held for more than one year. On a fix and flip, the tax bracket is considered as an ordinary income tax bracket, not a capital gain tax. The income for an investment is when you deduct the purchase price, the repair amount and carrying cost from the sales price. That's the net profit and that's what you're going to pay the taxes.

For an investor, the tax is normally from 10% to 37%. When it's a capital gain tax, normally the tax bracket is zero to 20%. So it's not 37. But on a fix and flip on the net profit, you may have to pay a 37% tax. So just be mindful of that. Of course, for details on the tax bracket and all the insight, check out with a certified public accountant or your tax person, whoever does tax for you. Or you can of course check the website IRS.gov. But this is just from an investor's point of view why the fix and flipper are considered a property dealer, not a regular investor. My name is Shawn Bhakta from Remax Presidential South Florida Home Finder Team and see you in the next video.

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