Tax Treatment For Land Entitlement Strategy

[Stuart Udis]

I sat in on a webinar yesterday for a land development fund where the sponsors get land under contract with the intent of completing entitlements before finding a builder to acquire the property for horizontal & vertical development. The sponsor explained their process as merely holding the contract without ever settling on the land yet suggested the LP's who invested in the fund would receive long term capital gains treatment. Would love to hear from the tax professionals how this is possible. I was under the impression the land must be owned for over 1 year but intent is a second consideration as the IRS will take into account dealer vs. investor.  Thanks in advance