Let's start by taking a look at 263A:
§ 263A. Capitalization and inclusion in inventory costs of certain expenses
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(a) Nondeductibility of certain direct and indirect costs
(1) In general In the case of any property to which this section applies, any costs described in paragraph (2)-
(A) in the case of property which is inventory in the hands of the taxpayer, shall be included in inventory costs, and
(B) in the case of any other property, shall be capitalized.
(2) Allocable costs The costs described in this paragraph with respect to any property are-
(A) the direct costs of such property, and
(B) such property's proper share of those indirect costs (including taxes) part or all of which are allocable to such property. Any cost which (but for this subsection) could not be taken into account in computing taxable income for any taxable year shall not be treated as a cost described in this paragraph.
(b) Property to which section applies
Except as otherwise provided in this section, this section shall apply to-
(1) Property produced by taxpayer Real or tangible personal property produced by the taxpayer.
(2) Property acquired for resale
(A) In general Real or personal property described in section 1221 (a)(1) which is acquired by the taxpayer for resale.
(B) Exception for taxpayer with gross receipts of $10,000,000 or less Subparagraph (A) shall not apply to any personal property acquired during any taxable year by the taxpayer for resale if the average annual gross receipts of the taxpayer (or any predecessor) for the 3-taxable year period ending with the taxable year preceding such taxable year do not exceed $10,000,000.
Property that you produce must be capitalized according to 263A(b)(1). Property that you purchase for resale is covered under 263A(b)(2). Note the exception to properties acquired for resale when gross receipts are less than $10,000,000 on average (allows you to expense everything as an ordinary business deduction up front, but only for personal property, not real property).
Also, the reference to 1221(a)(1) for resale property refers to the definition of a capital asset, which under 1221(a)(1) does not include inventory, under 1221(a)(2) does not include depreciable items (inventory is not depreciable, btw), and under 1221(a)(8) does not include things like supplies consumed in the business regularily.
Because you are purchasing for resale and/or developing for resale, these amounts aren't typically going to be treated as capital gains (inventory is ordinary income property, and you've got a real estate license and a construction company...). Capitalizing these amounts and holding them would allow for investment treatment (capital gains).
Note that land is never depreciated, just buildings on the land, and only if those buildings are being rented or otherwise used, not held for resale.
Perhaps you can go ahead and claim your land sale as a capital gain (short term)... there are two more sections I would like you to read if you care to. The first one is shorter:
§ 1237. Real property subdivided for sale
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(a) General Any lot or parcel which is part of a tract of real property in the hands of a taxpayer other than a C corporation shall not be deemed to be held primarily for sale to customers in the ordinary course of trade or business at the time of sale solely because of the taxpayer having subdivided such tract for purposes of sale or because of any activity incident to such subdivision or sale, if-
There is also Section 469, which describes what an active real estate professional is:
(7) Special rules for taxpayers in real property business
(A) In general If this paragraph applies to any taxpayer for a taxable year-
(i) paragraph (2) shall not apply to any rental real estate activity of such taxpayer for such taxable year, and
(ii) this section shall be applied as if each interest of the taxpayer in rental real estate were a separate activity. Notwithstanding clause (ii), a taxpayer may elect to treat all interests in rental real estate as one activity. Nothing in the preceding provisions of this subparagraph shall be construed as affecting the determination of whether the taxpayer materially participates with respect to any interest in a limited partnership as a limited partner.
(B) Taxpayers to whom paragraph applies This paragraph shall apply to a taxpayer for a taxable year if-
(i) more than one-half of the personal services performed in trades or businesses by the taxpayer during such taxable year are performed in real property trades or businesses in which the taxpayer materially participates, and
(ii) such taxpayer performs more than 750 hours of services during the taxable year in real property trades or businesses in which the taxpayer materially participates.
If you buy and sell land, without doing anything to it, and make a profit, then you've got a stronger case for capital gains treatment on your 1040, Schedule D (short term capital gains don't necessarily help anyways though, as they are taxed as ordinary income generally speaking).
See this website for a nice explanation of capital gains:
Edited by BK-CPA on 7/7/2010 at 1:54 PM EST