INTENT DICTATES CHARACTER OF REAL ESTATE GAIN

Check out the decision in Fargo and King (TC Memo 2015-96) for a refresher on the rules regarding whether real estate gains are capital versus ordinary, depending on whether the property was “held” for development, as opposed to an investment purpose.

The courts typically analyze various factors when this issue arises, in evaluating whether a taxpayer “held” property primarily for sale to customers in the ordinary course of business, including:

~The purpose for which the property was originally acquired
~The purpose for which the property was subsequently held
~The extent to which improvements, if any, were made to
the property by the taxpayer
~The frequency, number and continuity of sales
~The extent and nature of the transactions involved
~The ordinary business of the taxpayer
~The extent of advertising, promotion, or other active
efforts used in soliciting buyers for the sale of the
property
~The listing of property with brokers
~The purpose for which the property was held at the
time of sale