I've been doing property development for a few years and I've rolled each project into the next. I've never taken much income out of the project. This next year that needs to end and I plan to start receiving something back.
The following numbers are fake numbers, but I'm trying explain my situation. Put an extra few zero's and you'll get what I trying to do.
My original investment: $4K
Total that I'll get back next year: $20K
So, I'd have to pay income on the $16K at regular income. I'd like not to do that.
If instead of $16K, I take ownership of buildable lots. Lets say the lots are worth $4K each, but the properties transfer to me with a very minimal value. I hold the 4 lots for a year and day, sell them for $4K and pay the long term gain instead of short-term gain.
I would end up with 4 lots sold in a year that I'd get 16K out of. If I went ahead and built on them, I could stretch this out even further and 1031 them until I'm ready to pay taxes. I'm not trying to get out of taxes (except the short-term ones).
Is that ok to do?
In substance (and this is how the Government might look at it), it appears that you are receiving the 4 lots simply as taxable compensation for your property development activities. Assuming that this is so, then its really no different than had you received cash equal to the FMV of the lots on the date you received them, which again would be taxed to you as receipts attributable to the active trade or business activities of property development.
I assume you know that you can't 1031 active trade or business receipts.
@Garen T. , I'm not a tax accountant, but, you NEED one! A red flag I saw relates to SOMEONE "gifting" you $4k lots for next to nothing? What are THEIR legal/taxable consequences for doing so? Just sayin'...
@Garen T. is the $20k long term capital gains? I see you said next year. If not, Maybe wait to sell it a little longer and lease it in the interim.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing