Thank you for helping me out. I do have one more wrinkle in this transaction. This land was bought in a holding company, then I later sold the developed land through an investment company. Will this change my gain treatment.
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Dan---------
I don’t know the answer to this question. You probably better ask your account about it, if you haven’t already done so.
However, I doubt it. What difference does it make what the entities are that are involved in the transactions? The difference is between investing and running a business. This was not investing. It was real estate merchanising.
Do you mean “Can one sell an improved property and have the gain taxes as long-term capital gain?” Or do you mean “Can I develop a property and then sell in such a way as to have the gain taxed as long-term capital gain?” Or did you mean something else?
I BOUGHT LAND, DEVELOPED IT. MY ACCOUNTANT BELIEVES THAT THIS WOULD BE TAXED AS AN ORDINARY GAIN. IT WOULD OBVIOUSLY BE MORE BENIFICIAL FOR ME IF THIS TRANSACTION WAS A CAPITAL GAIN. ARE YOU FAMILIAR WITH THIS.
THANKS
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Dan--------------
Your accountant is correct. I am not an accountant or tax attorney. However, it is clear that developing lots out of raw land is a situation where one pays ordinary income tax rates.
You must distinquish between “real estate investing,” which allows the use of capital gains treatment, and some other tax benefits, such as depreciation, installment sale treatment of a sale, and 1031 tax free exchanges and other real estate-related activities. The other activities are development, quick resale after buying, etc.
If you want capital gains treatment, you must be doing real estate investing. What you are doing is not real estate investing. I call it “real estate merchandising”–analogous to a grocer buying pallets of cartons of cans of corn and then selling the individual cans on the grocery shelf. You are engaging in commerce, not investing.