Real estate values have surged in many parts of the country and are still surging in some areas. That’s good news if you’ve been holding raw land for investment.
You might be ready to cash in by subdividing and developing your acreage and selling off parcels for big profits. Great, but what about taxes?
Good question, because there’s a big issue to consider.
The Tax Issue
When you subdivide, develop, and sell land, you’re generally deemed for federal income tax purposes to be acting as a dealer in real property who is selling off inventory (developed parcels held for sale to customers).
That’s not good, because when you’re classified as a dealer for tax purposes, all of your profit from land sales—including the part attributable to pre-development appreciation in the value of the land—is considered ordinary income. So, it’s taxed at your regular federal rate, which (for now) can be up to ... Log in to view full article.