Legal Question in Investment Law in Tennessee
Real Estate Investments
In the past I have owned rental property, done my own taxes and understand capital gains, however I am looking to purchase, rehab and sell distressed property. This would be my only occupation. I understand that according to how you list your occupation on your 1040, you can treat real estate investments as non-capital assets and it is taxed as ordinary income, which seems logical to me as it is inventory. Is this true? What occupation?
1 Answer from Attorneys
Re: Real Estate Investments
If you do housing rehab as your occupation, you will become self-employed. At that point, you need to decide on your business's legal status. A sole proprietorship is the easiest form to establish; you can go to work right away and report your income using Schedule C on the 1040 form. However, sole proprietors do not enjoy corporate shields from liability. Therefore, to protect yourself from being sued for construction faults, you will want to consider forming a corporation or limited liability company -- both of which offer corporate shields from liability against your personal assets.
Listing the occupation is trivial. The instructions for Schedule C have a long list of occupations and industry codes; you will select one of those if you file as a sole proprietor. If you file corporate income tax returns, you will list your industry but not your occupation title.
Running your own business will open up numerous business expense deductions that the average person employed by someone else cannot take.
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