You originally rated my answer as OK
Then a second expert added some information (saying essentially the same thing, along with SOME additional info).
Now I've noticed that you've come back and rated my response from right after we talked yesterday as bad service
Was that meant for me?
Regardless, my goal here is to make you a satisfied customer.
Not only that, a bad ratings affects my ratings AND my pay here.
I spent some time this morning doing some additional research to see if I could find a botXXXXX XXXXXne
for you and I've found some additional information that should bet be useful. ...
... the definitive answer:
There has been both ...
(1) a Supreme courtt
(2)a Tax court
The SUPREME COURT
defined primarily as meaning “of first importance”.
"How one determines the purpose of the property sold as a dominant part of taxpayers’ course of business is a matter of facts and circumstance.
When real estate developers buy and sell property as part of the ordinary course of a “trade or business”, they are considered dealers not investors. If considered a dealer, then the taxpayer will not be permitted capital gain treatment on the sale of such property."
The TAX COURT
considered the following factors in determining whether property is held as part of the ordinary course of “trade or business”:
These activities will support
- The purpose for which the property was acquired.
- The purpose for which it was held.
- Improvements, and their extent, made to the property by the taxpayer.
- Frequency, number and continuity of sales.
- The extent and substantiality of the transactions.
- The nature and extent of the taxpayer’s business.
- The extent of advertising to promote sales (or lack of advertising).
- The listing of the property for sale directly or through brokers.
- The above factors are applied to each specific property sold and in question, rather than the activities of the taxpayer.
that the taxpayer is an investor (rather than a dealer), therefore allowing the tax benefit, capital gain treatment on the sale of property
t: The amount of gain created by a real estate transaction versus the income from an individual’s daily activitiesActivities Test
: Were measures taken to plot, subdivide, or improve the properties. Minor investment activities acceptable.Sale of the property is not due solely to the improvements to the property.Market factors vs. property improvements play a large part to the disposition of the propertySales Solicitation Test
: Properties are not advertised for sale; nor are “for sale signs” placed on the properties or brokers used to sell properties. Sales are the result of a purchaser’s initiation.Sales Frequency Test
: The number of properties sold within a given time period. The Tax Court determine nine properties in four years did not constitute a business. Continuity Test
: Engagement in a business requires “regular and sustained” versus “intermittent and occasional activities”.Time Test
: The normal working time spent on career activities is greater than the amount of time spent on real estate transactions.Facilities Test
: The taxpayer does not maintain a separate office to transact real estate activities. In addition the taxpayer is not a licensed real estate broker or associated with a real estate company.With the bulk of the above tests documented the taxpayer can qualify as an “investor
Change of circumstances can also dictate whether a property was held for investment or whether the property is held as inventory for sale. Proof in the change of circumstances and intention can determine the success of changing a property from “dealer” property to “investor” property. In one case, the intention of the taxpayer to develop land to residential builders was changed by the state in its determination that the land was condemned and could not be developed. The taxpayer then changed the plans for the land and when the property was sold the gain was taxed at capital gain rates.
One of the more frequent causes of change in circumstance is due to unforeseen financial trouble. In a court case, the financial difficulties of the land development corporation, prompted creditors to place restrictions on the company’s activities. The creditors strongly recommended that the company leave the development business and sell the land without solicitation. The court determined that the property concluded its intention of being held for sale to the public in the ordinary course of business. The result of gain from the land sale was not due to the owners’ development or promotion but due to the elapse of time and natural amassing.Conclusion
: There is no fixed formula to determine whether a property is held for development or investment. The facts and circumstances of each transaction and the documentation of the taxpayer’s activities are critical. ... but maybe this gives you more detail, and what the supreme court and the tax court have actually laid down,
for you to use to build a case of investor vs dealer.
Hope this helps...