Tax question related to development

[Ron Czecholinski]

Does anyone here have a good handle on tax strategy related to development. If I purchase the land, put in the infrastructure, and hold for more than a year before selling lots, can profit from lot sales be claimed as capital gains? Also, realizing that building homes under contract is taxed as ordinary income, is a lease / purchase option that is held more than a year before selling taxed as capital gains?

[Linda Weygant]

Originally posted by @Al Wilson:

Lots owned by developers are inventory, so gain on sales is ordinary income. Probably a good idea to spend some quality time with your CPA. Good luck.

 Agreed.  Think of it this way.

An investment property (subject to capital gains) is one that generates income without having to sell the property (ie, a rental house)

Ordinary income is something that has to be sold before any income is generated.  (Inventory, flipping, lot sales)

This is a broad generality, but will help you keep it straight 90% of the time.