TAX SEASON

[VIEWQUEST]

If I were to purchase vacant land and then purchased a tractor plus equipment and expensed it for use on the land for maintenance would I be classified as a developer as opposed to an invester and holder of land for later sale? If I'm considered a developer then I'm guessing that I would pay tax based on income from the sale. If I'm considered a property invester without improving the land I think I would be taxed at the current capital gains rate. Any opinions about this would be appreciated.

 

[2nstonge]

My only opinion would be that if it were me I would run these scenarios by my accountant & maybe my lawyer for good measure. They would know my situation and the local, state & fed rules.

My first question would be: What entity classifies me as an investor rather than a developer??

Good luck, -Norm

 

[BB_TX]

We TBNers are always ready to give our opinions on anything. /forums/images/graemlins/grin.gif But I think I would only trust that one to the experts as Norm said, lawyers and accountants.

 

[MadDog]

Not even all lawyers, guys. Taxation is a very arcane specialty and most lawyers (myself included) don't know **** **** about it. I don't even give tax advice to myself! /forums/images/graemlins/grin.gif

 

[npaden]

Just buy enough stuff so that you have a loss and you don't have to worry about paying any tax! /forums/images/graemlins/wink.gif

 

[RonR]

I want a new sailboat, and I asked my CPA if I could buy a boat, then claim a shrimp boat biz and depreciate it.

He laughed, and said, maybe on the coasts I could, but the IRS would frown on me trying that in Kansas.

ron

 

[KiotiJohn]

You get no break on capital gains taxes for maintenance, only capital improvements. Add an air conditioner to the pasture, and you can deduct it, but just clean up the property and cut the brush won't get you squat regardless of how you're classified.

I'm no tax expert, but I know that maintenance is not a deduction.
Of course, the amount of time you hold the investment has an effect on the gains.

Any information you receive will probably not last long as the laws change faster than tax attorneys and accountants can go to classes to learn them.
John

 

[jcotta]

Free advice: You almost never want to classified as a developer. The reason is that you pay tax at ordinary tax rate which I will assume to be 20% plus you pay self employed social security tax at 15.3% total rate of 35.3% after expenses, versus capital gain rate of 15% You want to be an investor and pay 15%. If a tractor increases your land 20,000 and only depreciates 5,000 you are way ahead. If you sell 5 or more lots in one year you can be automatically classified as a developer. Get yourself a good accountant. The value of an accountant is highest when planning transactions, not doing tax returns. This is my night off so I am keeping my response short. Good luck.

jcotta

My father a CPA (48years) always gave free advice with the following disclaimer: "My Free advice is worth exactly what you pay for it"

I have been a CPA for 25 years and am using the same priceless disclaimer

 

[unreconstructed]

Go ahead and pay a CPA for an hour of consulting. He'll get you straight. "Coffee shop" tax advice will only get you confused and headed in the wrong direction.

 

[rpeter]

You want to buy vacant land hold it and still take a tax deduction? Best way I know of is to become a tree farmer. You have to plant at least one acre of trees in the right quantity. You can take your tractor as a Sec. 179 deduction in the year of purchase. All those expenses and you do not have to declare any income until you harvest the trees 20 years down the road. /forums/images/graemlins/grin.gif