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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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W is both a real estate developer and the owner and manager ...

Customer Question

W is both a real estate developer and the owner and manager of residential rental real estate. W is retiring and is going to sell both the land he is holding for future development and the rental properties he owns. Straight-line depreciation was used to depreciate the rental real estate. The rental properties will be sold at a substantial loss, and the development property will be sold at a substantial gain. What is the nature of these gains and losses?
Submitted: 9 years ago.
Category: Tax
Expert:  RD replied 9 years ago.
Are the land being held as inventory? and are you reporting rental real estate income as a passive activity?
Customer: replied 9 years ago.
The land is held as an investment. The rental real estate income is not a passive activity.
Expert:  RD replied 9 years ago.

The gain on sale of land will be capital gain and the loss on disposition of rental real estate will be ordinary loss. You will be able to offset the loss against the gain from sale of land.

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

RD and other Tax Specialists are ready to help you
Customer: replied 9 years ago.
Can you provide me with the tax code that backs your answer?
Expert:  RD replied 9 years ago.

Link to publication that states - gain on sale of investment property is capital gain.

http://www.irs.gov/publications/p550/ch04.html#d0e11105

And regarding loss on sale of rental property- this will be a Sec 1250 property and loss on sale of sec 1250 property will be part of Sec 1231 gains and losses. Sec 1231 losses are ordinary.

Link-

http://www.irs.gov/publications/p544/ch03.html#d0e5023

 

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

Customer: replied 9 years ago.
Thank you
Expert:  RD replied 9 years ago.

Thanks!

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