It depends on whether you’re viewed under the tax law as a developer. If you hold the lot as investment property, any gain you reap is taxed as capital gain. You may also owe an additional 3.8% tax on net investment income related to this gain. But if you’re a developer and your lots are essentially part of inventory, your gain is taxed as ordinary income. And because you are in business, you won’t pay the 3.8% tax as long as you materially participate in the business’s activities.
Rules that limit the deduction of losses from passive activities to income from other passive activities. Passive activities include investment rental operations or businesses in which you do not materially participate.