Talk:Land Development Projects

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I would like some feedback on taxpayers who take on land development projects. My research so far suggest there is not much chance the projects would qualify for capital gain treatment. But I am wondering whether, and under what circumstances, the development project profits would be considered self-employment income?

Cary

Posted by Cary Snyder on June 19, 2005

If it doesn't qualify as investment property (and you're probably right that it doesn't) then the only other thing it can be is property held for resale - eg: inventory - which means that it's trade or business property. Which means that the activity is going to be self-employment to the unincorporated taxpayer. I have a client who mostly deals in raw land which he develops minimally, if at all (some short-platting, a road here and there, maybe utilities hookups) - and he only sells properties he's owned for more than 5 years. Based on cases and rulings that I reviewed at length when he first became a client years ago, we treat all the sales as long-term cap gain. The one time he got into an actual development project, he bought land with a partner and they put it into an LLC, with profits subject to s/e tax. I was very comfortable that this effectively differentiated that activity from his investments.

Posted by JanAugCPA

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