Own land - want to subdivide and joint venture with builder

[Charwak Gummalla]

Hello BP members,

Need some guidance here. 

We own some land in southern Charlotte which is currently zoned r-40 for single family. We want to subdivide the land and partner with a builder and build a community and share the profits. 

Looking for some pointers and how to go about it. 

W are also open to sell the lots and get out as well. 

[Jay Hinrichs]

Quote from @Dave Foster:

@Charwak Gummalla, Adding to what @Jay Hinrichs said.  In general entitlements and rights such as density zoning etc do not create an issue with a 1031 exchange.  the commonly held demarcation is that if you turn a shovel you are changing the nature of the land.  That makes you a dealer and subject to ordinary income tax without the option of a 1031. 

When you buy you may have a tract of agricultural land.  You may annex into a city or get the planning commission to approve a density of 4 du/acre.  But what you still have is a tract of agricultural land with different entitlements if you ever choose to use them.

Once you turn a shovel then you are separating the land into lots.  It's now no longer a piece of agricultural land.  It is several individual identifiable lots.  You are a builder and have lost the option to 1031.  Good advice by Jay to compare additional tax vs profit to see if it's worth it.

 I will defer to your expertise .. years ago ( 1990)s when we flipped plats in CA.. that was the advice at the time we got  do all the work simply do not record it. Which is the last step to creating each lot. I suspect the rules got clarified over the years.. However like I mentioned though long time land owners are normally making the lions share of the profit on the sale of the land and staying in simply does not improve their net cash position when you go to dealer status from 1031 tax deferral. Although the last subdivision i bought for 5.5 mil  the owner just took the cash and paid their cap gains and I know they probably did not have more than 100k into the land they owned it for about 40 years. Pretty  typical of long time Oregon land owners.