My father bought land. Both our names were on deed but I paid $0.00. I improved the property and listed and sold it. I received half of proceeds. Investment income or no?

Forum|Forum|4 years ago
January 14, 2022
1 reply
11 views

I paid nothing for the property and worked myself and hired contractors to improve the land. Should the proceeds be considered investment income or a different kind of income?

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DaveF1006

Level 15

Yes. Proceeds are investment income. The costs for to improve the land can be added to the basis of the property thus reduce your capital gains for the sale of the land.

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dddaniel7Author

Level 2

The improvement, listing efforts to include photography and showing was all done by me. A substantial amount of work was done by me in the effort of improving and selling this property and the proceeds served as the gross majority of my income for this year. Improving and selling the property was my primary profession during the process. Looking at Flood, T.C. Memo. 2012-243, the court found that the income did not constitute capital gains but rather regular income for many of the same reasons this was my primary income in 2021.

is there any room to interpret these proceeds as regular income, because in my situation it was in my opinion.

Mike9241

Level 15

why would you want this as ordinary income? it would be reported on schedule C so you would owe taxes at the regular income tax rates. it is unlikely that the capital gain rates would be higher. you would owe self-employment taxes of about 15% on the net profit.

other issues: your father was on the title, should he be reporting some of the gain? you paid $0, did he file a gift tax return for the value you received.

your situation isn't clear with regard to the court case you cite. there the taxpayers held many lots and sold only some. so if you sold the only property you own does it rise to the level of a trade or business. I suggest you discuss your situation with a tax pro who can go into more details to give you an opinion. notice the penalties the taxpayers in the had to pay because they were wrong.

Mike9241