Real property that is held primarily for sale to customers in the ordinary course of business is not a capital asset. Any gain or loss on its disposition is ordinary. The seller is identified as a dealer. However, if the property is acquired and held principally for investment, any gain is capital. The determination of whether property is held primarily for sale depends on the facts of the case; the courts have identified a number of factors for making this determination.

Under Code Sec. 1231, property must be property used in the trade or business for taxpayers to apply Code Sec. 1231, which treats gains as capital and losses as ordinary for gains and losses resulting from the sale or exchange of the property. Rental real estate can be a trade or business if the owner rents properties and is substantially involved on a regular basis with renting, servicing tenants, and maintaining the properties. However, a taxpayer with a single rental property may have a harder time demonstrating that the rental is a trade or business.

Every business is unique and has particular tax considerations. Please contact our office so that we can set a time to discuss your business in more detail.