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Richard, Tax Attorney
Category: Tax
Satisfied Customers: 53715
Experience:  29 years of experience as a tax, real estate, and business attorney.
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What is tax treatment of the sale of undeveloped land by entity

Customer Question

What is tax treatment of the sale of undeveloped land by entity that also operates several rental properties and also does some minor renovations for customers?
Submitted: 4 years ago.
Category: Tax
Expert:  Richard replied 4 years ago.

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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Customer: replied 4 years ago.
IRS asserts that this sale of land is ordinary income as it a sale of a non capital asset such as inventory. Are they correct at all?
Expert:  Richard replied 4 years ago.

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.

Customer: replied 4 years ago.
Your thoughts if land was held for 6 months or so before it was sold?
Expert:  Richard replied 4 years ago.
If it was under 6 months, it's going to be short term any way so it won't make any difference because it will be taxed at ordinary rates.

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