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Discussion:Land Lease to Avoid Ordinary Income
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Discussion Forum Index --> Tax Questions --> Land Lease to Avoid Ordinary Income
Shappro (talk|edits) said:
| 11 January 2007
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| If I am a developer who then decides to lease the lots I have developed rather than sell them can I avoid Ordinary Income. In the past I have built the buildings and then leased them out but now I have several clients who want to lease the land and then build there own building. They will want to purchase the land sometime in the future (probably two years minimum). In the past I have developed and sold land and buildings as ordinary income and have always segregated the buildings that I am going to hold and lease. I am worried about holding period and if I do a lease to buy. Thanks for any help.
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JR1 (talk|edits) said:
| January 11, 2007
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| A lease is ordinary income. You only get capital gains by selling a capital asset. Holding them doesn't solve the problem. Oh, wait, now I know what you mean. You wonder if renting them will blow the future capital gain treatment. Excellent question. That would take some research...but I have a feeling that it would be ok.
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Shappro (talk|edits) said:
| 11 January 2007
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| Sorry for the confusion. Yes I want to know that when I sell the land in the future will I be able to take cap gains rather than ordinary income treatement on it. What little land I am selling right now I am taking as ordinary income. I have never leased just the land (I have built and leased the Buildings and sold much later and took cap gains). Thank you.
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Deback (talk|edits) said:
| January 12, 2007
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| Sales of land, whether leased or held as personal, are always treated as capital gains. There would be no depreciation to recapture as ordinary income on land. The gain on Form 4797 transfers to Sch D.
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Jdugancpa (talk|edits) said:
| 12 January 2007
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| Assets held for sale in the ordinary course of taxpayer's business are not capital assets. That is true of RE as well as personal property. The question becomes, does leasing these assets rather than selling them outright convert them from "inventory" to become a capital asset. Don't know for sure, but I would suspect not.
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Deback (talk|edits) said:
| January 12, 2007
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| I was thinking along the lines of the land being rental property and not business inventory.
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