Tax efficient way to sell condos

[Jason Mak]

**Posted this in the 1031 section already, but this might be a better place to put this topic**

Wanted to check in with BP and see if anyone had any experience with selling new construction condos and any advice how on to be tax efficient.

I'm currently constructing a 37 unit condo project and plan to sell the condos individually at retail price. As I understand, most developers who do this have to pay short term capital gains on proceeds and doing a 1031 exchange is challenging, unless I purchase 37 individual properties. 

Alternatively, instead of selling the condos, we could perhaps "lease to own" the property for 12 months in order to reclassify the condos as a long term capital gain which would result in being a taxed a lower capital gain %.

Was wondering if anyone had any experience with this and any advice.

Thanks

Jason

[Ashish Acharya]

Joson, constructing 37 unit condo is a considered a taxpayer's trade or business.  Sales of real estate that are an integral part of a taxpayer's business, rather than held for investment or speculation, are considered ordinary income. The sale will not qualify for capital gain treatment. 

Additionally, qualifying sales by investors are eligible for installment sale reporting, while dealer sales are not. You are not an investor, you are a dealer. 

There are ways to change part of ordinary gain to capital gain if the project is planned in advanced. If a condominium developer owns appreciated land on which the condominiums are to be built, a sale of the land to a controlled development corporation prior to undertaking development activities may convert part of prospective ordinary income into capital gain. There is another way  by selling it to "Middle Man"

You should talk to a qualified CPA on this before its too late. Sometimes other actual investment property that you have might be treated as dealer property if you don't have separate books and you will lose capital and passive activity.  you should also use separate entities for dealer activities and investment activities if you have any. I do not know your situation so I suggesting all these. Please talk to your CPA as soon as possible. 

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