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Capital Gains or Ordinary Income - Commercial Property

Technical topics regarding tax preparation.
#1
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Sale of Retail Suites of Commercial Property
Taxpayer is an LLC taxed as a partnership. The partners are not real estate developers (3 professionals & 1 real estate agent). The LLC bought commercial land in 2018 and hired a contractor to build a 15000 sqft retail space area divided in about 6 suites of various sizes (marketed as commercial condos). The LLC sold one lot in 2020 and two are under negotiations currently in 2021. My question is would sale of these suites be considered capital gain or ordinary income in nature? If ordinary income is there a strategy to make the unsold suites be considered as capital gains by any chance.
 

#2
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The Office
You're going to have to read the court cases under Sec 1221 to be able to advise your client. The answer is determined by fact and circumstance.

A good place to start might be:

Fargo, Victor vs Commissioner (TC Memo 2015-96)

Gartrell vs USA (619 F2d 1150)
 

#3
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NC
 

#4
MWPXYZ  
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Lancaster NH
Is the LLC selling lots or suites?

If suites, did the LLC plan to sell the condo's from the beginning or were the units rented at first? (did construction take more than a year, almost 2? Or maybe sales effort was COVID delayed?)

If lots; what was the motivation for buying the land, resale or development for rent or use by the LLC?
 


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