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House flipping Partnership

aepcpa
Level 2

Hello Everyone,

I have a question about how to treat a tax issue for a house flipping client. I have a client with a partnership that flips houses. It’s just him and his sister. He does the work and she only contributes cash. I know for my client he is considered a dealer and all income is ordinary. But what about his sister? Will her portion of the income be considered ordinary or it’s ok to assume her income is passive? I read a lot about this but I’m still a little confused. I read that all income from flipping houses should be ordinary and people that flip houses are all considered dealers. But what about the sister? Is she an investor or a dealer?
 
Thank you in advance for your help,
Anastasia 
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3 Replies 3
qbteachmt
Level 15

"Will her portion of the income be considered ordinary or it’s ok to assume her income is passive?"

You already stated they are operating under a Partnership agreement.

"Is she an investor or a dealer?"

Well, is she a Partner or just Lending to him? That's what you asked.

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aepcpa
Level 2

It would be passive. I would say the partnership is a dealer where on partner is active and the other one passive. She only put money into the partnership, other than that she had no other participation. Maybe I should put her as a limited partner with a passive income?

 

Thank you for your answer and sorry for responding late. It means a lot to me be able to get some ideas when I get stuck.

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qbteachmt
Level 15

"She only put money into the partnership, other than that she had no other participation"

I have a client like this, but then it turned out, she is the one that goes to the courthouse, to the auctions, pays the bills, etc. So, hours on admin, instead of hours on job sites. The brother has the hammers.

Only you know which are the facts and circumstances that apply.

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"Level Up" is a gaming function, not a real life function.