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Good afternoon. As long as the entity has held this for 12 months, you should be able to report this as a long term capital gain. An entity can hold different kinds of assets and just because the entity also has rental properties, it does not preclude the entity from having investment property that can be sold and treated as long term capital gain.
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It's not unusual that they might take that position, but your argument is better. If the land has been held for 12 months or more, this is investment property held for investment.