Not Enough Activity to Be a Developer

If you suffer a loss on the disposition of real property, you want to be treated as a developer for income tax purposes – that is, to be treated as engaged in a trade or business. That way, you can get ordinary loss treatment and not a long termor short term capital – the ordinary loss will typically be available to offset more types of income than a capital loss.

So how many properties must one be dealing with and how much activity is needed to cross into developer territory? This question comes up a lot – it is a question of facts and circumstances. In a recent Tax Court case, ownership of 3 properties coupled with sporadic development activities was not enough for ordinary loss treatment…

Evans, TC Memo 2016-7

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