Tax on Gain from Sale of Real Estate

[Account Closed]

Looking to purchase a lot and build 2 or 3 spec homes in the Houston area. I'm wanting to understand the tax situation if the property is purchased, the homes are built and the first home on the lot is sold over one year from the date of lot purchase, does the capital gains tax rate apply? 

[Dave Toelkes]

@Account Closed

The answer to your question is NO.  You are acting as a real estate developer. Any profit on the sale of your spec homes is ordinary business income subject to self-employment income taxes as well.  Length of holding period does not matter -- tax treatment is still the same even after holding more than a year. Of course, consult your own licensed tax adviser for specific guidance tailored to your unique circumstances.  I would not expect a real estate attorney to have the requisite knowledge, training, or experience to address income tax questions.