Submitted By: someone
Answered: October 24, 2022 11:58 pm

I owned land held for real estate development but sold it before any construction began. How do I treat my gain

Whether gain or loss on the sale of the land held for development is ordinary income (or loss) or capital gain (or loss) depends on the situation. If land is held as inventory for sale to customers in the ordinary course of business, then gain or loss is ordinary gain or loss. If land is merely held for investment, then gain or loss is capital gain or loss. The facts of the situation make all the difference. Consider the nature of the acquisition of the property, the frequency and continuity of sales over a period of time, the nature of your business, your activity with regard to the property (e.g., whether there’s been any development), and the extent of the transactions (e.g., only one versus numerous sales of lots). Discuss your particular situation with a tax professional.

Tax Glossary

Section 1231 property

Depreciable property used in a trade or business and held for more than a year. All Section 1231 gains and losses are netted; a net gain is treated as capital gain, a net loss as an ordinary loss.

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