Mary is both a real estate developer and the owner and manager of residential real estate. Mary is retiring and is going to sell both the land he is holding for future development and the rental properties he owns. Straight-line depreciation was used to depreciate the rental real estate. The rental properties will be sold at a substantial loss, and the development property will be sold at a substantial gain. What are the nature of these gains and losses?
I am trying to figure out the important facts of the case. Any suggestions.
I'm guessing that everything is a 1231 asset since it's all business use. Would he be an active participant? How can I tell from what I have? Any suggestions are appreciated. We don't have 1250 recapture since it was all straight line realty. What issues do you see? How might you present them?
2006-11-12 02:42:35 · 4 answers · asked by Tommy L 1 in Business & Finance ➔ Taxes ➔ United States
the rental business is different from the development business.
as a professional realtor mary gets special depreciation losses each year ( well by special i mean unlimited to the usual $25K)
RENTALS are 1250 i think
the accumulated depreciation on the rentals must be figured into the equation by adjusting the cost basis downward which may raise the gain up above a loss as you hypothexize. this will in turn create a tax liability of cap gain.
land held for future development may be inventory of the develpoment business so selling it at gain probably creates ordinary business income. perhaps require self-employment tax in addition to other ordinary income tax. these are not subject to cap gains rate
PS he is probably active participant on rental property but must answer questions about this from facts of case. he must manage it some etc.it sounds like he is active participant to me.
2006-11-12 02:51:19 · answer #1 · answered by Anonymous · 0⤊ 1⤋
The real estate development and because of that the rental would be an active trade because he spends a significant portion of time each year. The rental would be a 1250 asset but you would be selling at a loss so there would not be any recapture.
The land sale would result in ordinary income unless something is done to change the character of the holding to investment rather than land held for development.
2006-11-12 04:32:20 · answer #2 · answered by waggy_33 6 · 0⤊ 0⤋
How approximately tax exemptions for church buildings. Some of those church buildings are mega cash-making corporations. Should they be ready to cover below the cloak of a "charitable devout group" whilst they're making hundreds of thousands - a few even more commonly billions? And it is debatable due to the fact of the entire Establishment Clause limitation. However, if you're seeking to get this released right into a Law Review, it should have already been mentioned.
2016-09-01 11:15:01 · answer #3 · answered by ? 4 · 0⤊ 0⤋
Tax implications with questions to make you think: ...from CPA
Why does everything have to be sold in the same year? Why are you selling the rentals (losses) all in one year?
Why not December....and then January...different years...see?
also you can take the money in payments over a number of years......can you calculate the effect of that?
During the years of collection, you can keep putting money into an IRA, or Keough ...to lower the taxable level.
Financial Planning with tax implications is very important......I think you're just seeing it from the .........let it happen perspective, and that costs people money....that they need the help with planning!
Plan your work and work your plan...or it works you in the wallet!
2006-11-12 03:56:03 · answer #4 · answered by May I help You? 6 · 0⤊ 1⤋