Do Sponsors/Developers Pay Capital Gains Tax?

Question

Hello All,

I wanted to find out if developers pay a capital gains tax, since I have several clients that may be affected by a potential new policy(depends on who wins election)?

Thanks,

Zack

Zack Royals · Answer

I see. Would the time frame of the construction affect whether it's ordinary income tax or capital gains tax? For example, in NYC building construction for big projects can take up to 3 years and once the project is completed properties start closing.

Linda Weygant · Answer

@Basit Siddiqi is likely referring to the treatment of land as inventory by developers.

The taxation of real propery is generally based on intent.  The vast majority of land developers are really just buying and selling inventory, so this becomes ordinary income.

Zack Royals · Answer

Thank you Basit.Ah ok, what would be the tax classification in that case?

Basit Siddiqi · Answer

@Zack RoyalsDevelopers normally don't treat their assets as capital assets.

Zack Royals · Answer

Very helpful, thank you Greg!

Greg Dickerson · Answer

It all depends on the type of project, time frame and the structure used to develop the property. The idea is to take advantage of and minimize capital gains whenever possible. It’s best to run this by an accountant that specializes in working with developers and or has an intimate knowledge of the tax code and recent changes in regards to tax implications of different types of development.