Posted by Dave T on March 23, 2000 at 23:40:29:
First let’s address the lots you sold to DOT. It appears from the information you gave, that this may fall under section 1033 rules for involuntary conversion. As long as you acquire replacement property (that meets the section 1033 valuation rules) within two years after the conversion, you can defer the capital gains. Your accountant seems to be on target here.
Now let’s consider the vacant lots you quick flip. Section 1031 treatment is not available to you. The IRS treats these lots as your “inventory” (product held primarily for resale to customers) and you as a dealer. If you bought and sold these lots in your own name, your profits are taxed as ordinary income at your current marginal tax rate. All profits are fully taxable in the year of sale.
If your marginal tax rate is higher than 15%, you may want to consider using a C-Corp to buy and sell the lots. The tax rate on the first $50,000 of C-Corp profit is only 15%.