This article gives you tax-saving tips on raw land and vacant lots held for investment. Tax law favors raw land and vacant lot investments, allowing choices to expense or capitalize.

The tax strategy of renting property you own personally to your businesses needs your attention if you want tax benefits. Similarly, special recharacterization rules apply to rentals of land and also when land is a big part of the rental.

Section 1237 grants a safe-harbor to qualified taxpayers who want to subdivide land. The safe-harbor requires the taxpayer to pass seven tests, but then rewards the taxpayer with tax-favored capital gains treatment (versus ordinary income treatment).

Good tax planning can avoid ordinary income treatment on the subdivision of land. The planning involves avoiding the partnership entity and using an S corp. for development.

You can be a dealer with respect to some properties and an investor with respect to others. You can also subdivide lots and obtain tax-favored capital gain treatment, but you need the right numbers and a good plan.

One of your first tax steps in buying a rental property is to go through each line item in the closing statement and assign it to one of the following three categories: (1) basis, (2) loan acquisition, or (3) operations. With basis, you allocate to land, land improvements, buildings, and equipment. Loan acquisition falls into either costs of getting the loan or costs to reduce the interest rate. The assignments have a direct impact on how quickly you realize the deductions.