VIDEO: 'Investor' Vs. 'Dealer': Why It Matters To The Internal Revenue Service

Many real estate investors aren't sure if they are "investors" or "dealers" in the eyes of the IRS. The distinction is important because a dealer does not enjoy the 1031 exchange benefits that an investor has.

You may not know it, but you might be disqualified from taking advantage of the 1031 exchange. You may also be subject to a 39.6% tax rate.

You can ensure that you're an investor, not a dealer, by having a corporation that owns and controls LLCs, which in turn ultimately own the assets.

If you take this approach you will not be considered a dealer by the IRS.

The IRS, notably, gets to make this decision on their own. So you need to work with a CPA and an attorney to make sure you follow these rules so that you're not surprised by huge tax consequences.

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Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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