Exciting Updates for Real Estate Taxation in 2024!
Your real estate portfolio can include both investor and dealer types of properties.
This differentiation is critical when it comes to tax implications.
Consider this: you make a $90,000 profit on a property sale:
- As a dealer, your tax liability could reach up to $46,017.
- As an investor, the tax might be considerably lower, around $21,420.
This represents a remarkable tax-saving opportunity of $24,597 for investors!
It’s vital to evaluate each property in your portfolio on its own merits to ascertain its category. Accurately documenting whether a property is an investment or a dealer property in your records is essential.
Failure to do this could result in complex issues with the IRS, and it’s generally unwise to depend on the IRS’s leniency.
Criteria used by courts to determine your property’s classification:
- The decisive factor is your intent at the time of the property’s purchase and during its holding period. Your documentation is crucial in demonstrating this intent.
- Properties intended for sale to customers typically fall into the dealer category. Regular buying and selling of properties within a year usually leads to a dealer classification.
- Properties you buy for renovation and resale are often categorized as dealer properties.
- Dividing properties often results in them being classified as dealer properties, except when they align with the specific provisions of IRC Section 1237.
In contrast, properties aimed at long-term appreciation or generating rental revenue are generally viewed as investment properties.
Keep in mind that each property is classified independently.
Therefore, owning a combination of dealer and investor properties is feasible, whether as an individual or a corporation.
Learn more about capitalizing on 2024 tax changes.
