If your intent right out of the gate is to develop and sell, the income wouldn't be short-term gain, it would be ordinary income with self-employment tax exposure.
Holding for a year doesn't matter. Read this recent thread: https://www.biggerpockets.com/forums/51/topics/616...
Best to have your tax CPA/EA give you the run down on vacation rentals with personal use involved. They're subject to special treatment under Sec 280A.
@Jenny Gremillion Other good topics to discuss with your CPA: (1) intend to turn them both into vacation rentals and hold onto them, or (2) installment sale (owner-financing).
On top of @Eamonn McElroy ‘s great input, I would like to add that if you need to sell the developed property rather than holding it, you might save some taxes if you sell the lot to the controlled entity before actually developing it.
The sale of the land to the entity can be treated as sale of the investment property. You gotta hold land at least a year to do this.
This is high level, need to document intent and figureout the details with your professional.
@Jenny Gremillion Can't hurt to run it by her to ascertain her comfort level.
There's CPAs all over the country who are familiar with not only federal tax law, but state and local tax law outside of their geographical location.
No need to limit yourself to where the property is located. My 2 cents.
Is there anyone you can trust that is in the lowest tax bracket, preferably living in a no or low income tax state?
Prior to 2018 it may have been advantageous to sell the lot to a controlled C Corp as C Corps were bracketed and any net taxable less than $50k was taxed at 15% for federal. Buy one townhouse back from the C Corp once it's finished. If OP is in the 0% qualified dividend tax bracket it would have made even more sense because the gains would need to be removed via dividends or salary. @Ashish Acharya touched on this above.
For 2018 and forward, C Corps are taxed at a flat 21% rate for federal.
Florida has no individual income tax, but does have an income tax on C Corps. An exemption is offered for the first $50k of Florida source net taxable which helps a lot of small businesses. Something to keep in mind.
@John Acheson A lot to be considered here with that suggestion. Even ignoring the 'theft' risks, you have gift tax return exposure (and use of lifetime exemption), transfer taxes, no basis step up involved with gifting the property back and forth, probate risks if the 'buddy' passes away and didn't update their will for the property. The absolute lowest income tax strategy isn't always the best for the taxpayer.
Regardless of the path chosen, OP should definitely consult a pro who can examine facts and circumstances, as well as goals.