Development of Farm Ground

Forum|Forum|5 years ago
June 23, 2021
1 reply
15 views

New client developed their farm into 6 lots. If the land were to be sold before being developed it would be taxed as long-term capital gains. Since they paid contractors to develop the land into 6 individual lots, does that mean they cannot get capital gains treatment?

Lacerte Tax

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IRonMaN

Level 15

Why would paying contractors change how the sales will be taxed?

Slava Ukraini!

C

codeblue123Author

Level 3

If they develop the land does it cause it to be taxed as ordinary income? I expect if they build a home on a lot, that they would be taxed as ordinary income and not capital gains rates. I am trying to understand if developing the land causes these sales to be from a trade or business and subject to self employment taxes. I know flipping a house is subject to self employment taxes.

IRonMaN

Level 15

Sales are treated as ordinary income if you are in the business to sell properties. The more sales you have, the more you sound like you are in the real estate sales business.

Slava Ukraini!

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