Talk:Subdivision Lot Costs

From TaxAlmanac

Subdivision Lot Costs

I have a question regarding cost of subdivision lots sold. I have a few clients who subdivide and sell lots, and I obtained 2 new clients this tax season. After observing how the former CPA's of the new clients are costing lots, I am questioning if I am doing it correctly.

In my practice I have allocated subdivision costs based only on those cost accumulated to date, divided by the number of lots or some reasonable allocation method, then costed those lots as sold in each year. I have not included any future anticipated costs in the costs expensed unless pursuant to Rev Proc 92-29, whereby certain requirements must be met to use this alternative cost method, and whereby a statement to extend the statute of limitations is filed, and whereby annual filings pertaining to cost of lots, etc is required.

The former CPA's of the two new clients I obtained this year have costed lots based on historical and future anticipated costs (i.e., the total estimated cost expected per lot to complete each lot), which is essentially the same method referred to in Rev Proc 92-29, except that neither CPA has made any filings pursuant to Rev Proc 92-29 concerning initial anticipated costs, annual filings, extension of statute of limitations etc. One CPA referred on the 1120S to his filing method as the completed contract method, and the other CPA referred on the 1120S to her filing method as the accrual method.

What is the proper way to cost out lots in subdivisions?

Also, while on this subject, the former CPA above reported the lot sales of that client as capital gain transactions, although the developer is a home builder, regularly buys land and subdivides lots, and his wife is a real estate agent, and I would like your input as to what kind of income you believe this might be for the taxpayer?