I have a client who purchased a piece of land and a home which he moved onto the land to sell. We have gone back and forth as to whether he is a dealer or an investor (Sch C vs Cap Gain). From what I have found I think we can marginally get into the investor category because he has only done this once and does not intend to do it again and he does have several other rental houses. This particular rental house would not be feasible in our area and after he crunched the numbers the interest and other expenses would not be covered with the rental payments he could get in the market.
Now however, he is selling the house. The actual land was purchased over a year before the sell and the house 13 months before the sale, but he did a LOT of construction, dug a basement, actually moved the house onto the land and finished less than a year before the sale (ie - it was NOT ready to be put into service as a rental). He is going to move his business (which is several businesses and personal tax returns) elsewhere if I go short term cap gain, but just wanted to get some others input to be comfortable that letting him go is the right decision. It would make at least a $40K tax difference.