This is an issue that crops up frequently. The question is whether or not the seller is selling the house in the ordinary course of its business. A good summary of this can be found at: http://www.fogelcpa.com/Documents/DMF-CSEA-REdealer.pdf . But, here's the thing. You must remember that the seller here is the LLC, not the builder. The LLC is a separate and distinct entity. And, the issue is one of fact. And, it's important how you write your Operating Agreement. As drafted, your accountant is right in that it looks like the intent of the business of the LLC is flipping the house. This would prompt an accountant to take the position that any gain is ordinary income. What you want to do is change your Operating Agreement to provide that the business of the LLC..and remember this LLC is simply dealing with this one house....is to buy, renovate, and hold the house for rental or investment. That shows an investment intent, not a flipping intent. Then, if, later, the LLC decides to sell the house, then it's the sale of a capital asset
(rather than inventory), and you would have a strong basis for treating the gain as capital gain
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