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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2343
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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A client of mine owns 8 real estate holdings, which are in

Customer Question

A client of mine owns 8 real estate holdings, which are in effect one business. He does nothing but operate this business. He is the only owner and dedicates his day to their maintenance and operation. Can he file schedule C in this case?
Submitted: 6 months ago.
Category: Tax
Expert:  Anne replied 6 months ago.
HiI'm Anne. I've been preparing taxes for 28 years and I'll be happy to help you.Unfortunately the rules set up by the IRS are very clear here:You can only report this income on Schedule C if you provide substantial services, or if you are a real estate dealer. Not a real estate investor, but a dealer. Please see below: estate investors purchase real estate with the intention of holding their properties and gaining a financial return.Real estate dealers buy and sell real estate as part of their everyday business. Real estate professionals who are involved in “flipping” (i.e. buying real estate with the intention of selling it for a profit in a short time frame) are usually considered dealers. Also, builders and contractors who build houses and sell the finished houses to customers are also considered dealers. The definitions used above came from below, and is the best definition I have ever found. The other classification that must use Sch C is a licensed real estate broker. So, even though your client's only income is from the rents, unless he meets the criteria to be a real estate dealer, or is a licensed real estate broker, this income must stay on Schedule E. If this answer has helped you, please take the moment to rate positive by clicking on the stars.It is ONLY through positive ratings that we are compensated for our time and knowledge. Thank you for choosing justanswer.
Customer: replied 6 months ago.
He is buying these properties with the intention of fixing them up, getting tenants and selling them in relatively "short" time? Does that matter?
Expert:  Anne replied 6 months ago.
If he gets his real estate license, then he could put it on the Sch C. Please keep in mind that as an investor only, when he sells the property, any gain is considered to be a capital gain, subject to the more favorable capital gains tax. As a licensed dealer, any home he sells is considered as inventory, and any gain is taxed as ordinary income. I hope this helps.

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