From TaxAlmanac, A Free Online Resource
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> Capital gains vs ordinary income
Tdh555 (talk|edits) said:
| 20 June 2007
|
| A lot is purchased to develop a single parcel of land (land engineered, surveyed, graded, licenses purchased, inpections passed, utilities laid, landscaping, sidewalks, etc)then sold for a profit after one year. The land is NOT subdivided. Capital gains or ordinary income subject to self employment (developer has no other waged income, just investments/rentals)?
|
Jdugancpa (talk|edits) said:
| 20 June 2007
|
| Has the guy in recent prior years developed properties that were reported on Sch C? Since he sold this one, has he purchased additional properties that he has begun to develop? Has he expressed intent to be or become a developer? I.e., do his activities in this arena arised to the level of being an active trade or business? If yes, the it is sale of inventory on Sch C. If no, then cap gain on Sch D.
|
Riley2 (talk|edits) said:
| 21 June 2007
|
| Since he held it for only one year, it would be tough to argue that this property was held for investment if the value of the improvements exceeded the initial cost of the land.
|
Jdugancpa (talk|edits) said:
| 21 June 2007
|
| Wouldn't that depend upon his reason for selling? Maybe he started and got in over his head financially. Maybe he came upon hard times and needed to liquidate to provide necessary funds for college, medical expenses. Maybe some other factors caused him to sell when he originally intended to hold the property for a period.
|
JR1 (talk|edits) said:
| June 21, 2007
|
| As I recall the case law, the things that Tdh's client did don't prohibit the idea that he was holding for investment. I seem to recall that land improvements have been allowed.
|
Larry0434 (talk|edits) said:
| 21 June 2007
|
| Assuming you have a dealer client review IRC 1237
|
Tdh555 (talk|edits) said:
| 9 July 2007
|
| thanks everyone....Schedule D due to facts/circumstances.
|
Riley2 (talk|edits) said:
| 9 July 2007
|
| JR1, you are quite right about improvements -- the presence of improvements does not necessarily indicate that the activity has risen to the level of a trade or business. However, a general rule of thumb is that if the cost of the improvements exceed the cost of the land, the courts will generally regard the activity as a trade or business if selling or marketing activities are present.
|
To join in on this discussion, you must first
log in.
