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Posted by eglazier on March 30, 2007, 4:15 am
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Let's suppose I purchase a parcel of land for $1 million and
subdivide the same into 5 lots. My understanding is that if
I was then to sell each of those lots for $300K each, I
would pay ordinary income on the gain of $500,000. However,
let's suppose that I create 5 seperate LLCs and sell each of
the lots to 1 of my LLCs for $200K. My profit is now
nothing. Now, each of those LLCs sells each of their
respective parcles (which the LLC purchased for $200K) to
another buyer for $300K, 1 year later. Is this taxable as a
capital gain?
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Posted by Frederick Lorca on March 30, 2007, 11:06 pm
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> Let's suppose I purchase a parcel of land for $1 million and
> subdivide the same into 5 lots. My understanding is that if
> I was then to sell each of those lots for $300K each, I
> would pay ordinary income on the gain of $500,000. However,
> let's suppose that I create 5 seperate LLCs and sell each of
> the lots to 1 of my LLCs for $200K. My profit is now
> nothing. Now, each of those LLCs sells each of their
> respective parcles (which the LLC purchased for $200K) to
> another buyer for $300K, 1 year later. Is this taxable as a
> capital gain?
If you hold the property for 5 years and meet certain other
requirements, section 1237 of the Internal Revenue Code
permits you to treat the gain as long-term capital gain
provided you subdivide the land into 5 or fewer parcels.
The arrangement you are contemplating above of transferring
ownership from yourself to LLC entities owned by you gets
you ensnared in the related party rules found in section 267
of the Internal Revenue Code.
Frederick Lorca
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Seth Breidbart on March 30, 2007, 11:06 pm
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> Let's suppose I purchase a parcel of land for $1 million and
> subdivide the same into 5 lots. My understanding is that if
> I was then to sell each of those lots for $300K each, I
> would pay ordinary income on the gain of $500,000. However,
> let's suppose that I create 5 seperate LLCs and sell each of
> the lots to 1 of my LLCs for $200K. My profit is now
> nothing. Now, each of those LLCs sells each of their
> respective parcles (which the LLC purchased for $200K) to
> another buyer for $300K, 1 year later. Is this taxable as a
> capital gain?
Form over Function: the IRS will look through the transactions.
If you buy the land, wait over a year, and sell it, that's
probably long term capital gains (unless you're in the real
estate business).
A method that shouldn't work: set up the corporations now
(funded mainly with $200,000 IOUs). A year from now, buy
the land, and sell parcels to the corporations at cost (paid
for with their IOUs). Then you can sell the corporations
themselves immediately; since you've owned the stock over a
year, that's long term capital gains.
Seth
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Gil Faver on March 30, 2007, 11:06 pm
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> Let's suppose I purchase a parcel of land for $1 million and
> subdivide the same into 5 lots. My understanding is that if
> I was then to sell each of those lots for $300K each, I
> would pay ordinary income on the gain of $500,000. However,
> let's suppose that I create 5 seperate LLCs and sell each of
> the lots to 1 of my LLCs for $200K. My profit is now
> nothing. Now, each of those LLCs sells each of their
> respective parcles (which the LLC purchased for $200K) to
> another buyer for $300K, 1 year later. Is this taxable as a
> capital gain?
of course. Unless you are a dealer, in which case it is
ordinary income.
If it qualifies for capital gain treatment, consider whether
it qualifies for 1031 exchange treatment.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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