IU P&T; What constitutes earned income?

[allansc2005]

Got a veteran who was just awarded IU P&T. She wants to get into the house flipping/house whole selling business, which of course doesn't require any physical activity.

 

Questions:

1. Is the income generated from flipping houses considered "earned" income? Yes, I know, this is more of an IRS question, but if you know the answer, please post it.

2. Does the VA only consider EARNED income when applying the IU P&T rules for employment?

Thanks

 

2-2-0 HUAH!!

[broncovet]

Just because you reported the income on your tax form, does not necessarily mean its "earned income".  

Here are a few examples of "investment income" which needs to be on your taxes, that is NOT earned income:

1.  Capital gains from your home, or from sale of one or more stocks.  You have to pay taxes, but they are not "earned income", but are investment income.  

2.  Dividends from stocks or bonds.  Again, investment income.  

3.  Profits from a sale of business.  

      The major difference between "earned income" and "investment income" are whether or not you put up your own cash; whether or not you spent your "time" on it.  Investors generally put their money into it, and people who "work" at the business generally invest their time in it.  

      There is a grey area where it could be "investement income" or earned income.  Best is to go to the IRS website, or ask your accountant which this would be.  

     Disabled Vets can enjoy as much investement income as they like, and it does not affect TDIU.  

[stinger]

4 minutes ago, allansc2005 said:

Got a veteran who was just awarded IU P&T. She wants to get into the house flipping/house whole selling business, which of course doesn't require any physical activity.

 

Questions:

1. Is the income generated from flipping houses considered "earned" income? Yes, I know, this is more of an IRS question, but if you know the answer, please post it.

2. Does the VA only consider EARNED income when applying the IU P&T rules for employment?

Thanks

 

2-2-0 HUAH!!

There are a lot of occupations that require the same skills and effort as house flipping,some even less. I think that would be pushing the envelope. 

[allansc2005]

@Stinger, my questions don't really pertain to "skills", they are directed more toward the income generated from flipping houses, and whether or not the VA considers it "earned" income, as it relates to the employment rules for IU P&T.

2-2-0 HUAH!

[brokensoldier244th]

If she has to declare it on a tax form, then its earned income. I would suspect that flipping houses, if successful at it, would definitely exceed the poverty line threshold for IU and income.

[ruby]

Yes, it’s earned income!  You claim it on taxes it’s earned.

Evidence Requirements:

• Evidence of at least one service connected disability AND
• That the service-connected disability or disabilities are sufficient, without regard to other factors, to prevent performing the mental and/or physical tasks required to get or keep substantially gainful employment AND
• That one disability is ratable at 60 percent or more, OR
• If more than one disability exists, one disability is ratable at 40 percent or more with a combined rating of 70 percent or more.

[broncovet]

Yea, its probably earned income.  Now, if you HIRED someone to find, remodel, and sell property, then it might be considered investment income.  That is, you put up the MONEY, but not your efforts.  

For example, you can hire a property manager, who selects and screens tennants, collects rents, evicts, etc.  

But, if you do those things yourself, then its earned income.  

Investment income is when you invest your money and others do the work. 

Earned income is when you invest your time and money into the project.  

Tread carefully here.  If you venture into this "grey area" you can get burned.  

Better is to "invest" your money into something, even things like a REIT (Real estate investment trust).  But if you "actively" manage the project, then you are a boss and you earned the money. 

This may explain it better:

https://yourbusiness.azcentral.com/distinguishing-between-earned-income-investment-income-1892.html

Under no circumstances do I recommend you lie to VA or lie to IRS.  If you are working in this business, then its earned income, even if all you do is manage others.  

But, if you turn it over to a property manager...and have your accountant do the paperwork..and all you invest is money, not time, you should be okay.  

Remember, "working" is not always physical work, many managers work hard and never pick up a hammer.  It isnt about physical work, its whether or not you supply your efforts or just your money.  

 

Edited July 23, 2018 by broncovet
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