Business Or Personal?
Greetings,
I have purchased several lots in Colorado and am just completing the building of a home on one. I live in Minnesota. The idea is to continue to develop these properties and owner finance them on sale as part of a long-term investment plan.
Generally speaking, is it best from a tax and liability standpoint to put these activities under a business structure, or keep these activities personal?
Any direction is appreciated. Thanks in advance.
Terry
This is a tough one although my favor turns towards using a separate entity. This will offer legal separation from your personal assets and also should provide favorable taxation. However, my only concern is that if you are labeled as dealer status for this activity, your capital gains tax is due that tax year (not over time as if you would sell on contract). This is a very important question and you should discuss it with a competent tax advisor.
GOOD LUCK
Myfrogger,
If hipper is developing land with the intentions to sell, are you sure that would be capital gains? Wouldn't that be ordinary income?
But I agree, I would recommend forming a separate entity for this activity.
Thanks for the advice.
I am planning on selling maybe once every year or two. Would that make any differerence, and does anyone know what the threshold is for "dealer" status with the IRS?
Thanks again,
Terry
As a developer, the tax treatment on each property sold is the same as a dealer dispostion.
You overall situation needs to be reviewed to see what structure is appropriate to reduce your overall tax liability. For example, depending on your income needs I might recommend a corporation with a pension plan to defer income recognition on the sale of these properties. There are many different options that should be explored prior to selling these properties. Many of my clients are amazed at the savings they receive with a sound asset/tax protection plan.
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