Submitted By: John
Answered: July 8, 2014 8:30 am

I own an undeveloped city lot. If I sell it, how am I taxed?

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.

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Tax Glossary

Carryback

A tax technique for receiving a refund of back taxes by applying a deduction or credit from a current tax year to a prior tax year. For example, a business net operating loss may be carried back for two years.

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