It seems that is might be classified as rental income (therefore passive) under Sect 1.61-8 of the Treasury regs, but I am way out of my area of expertise here.Can anyone who has successfully completed lease-option projects or has experience with reporting your option fees provide an outline of how those fees were treated for tax purposes?

The local classifieds, and other small local publications might be a fit. 

All capital expenses should be classified that way.

Would you classify this as a good/profitable deal?

It's pretty hard to say because so much is dependent on the kind of work you did and how you classify it.

For newly constructed, purchased or renovated properties and also retroactive generally over the last 10 years, building components are properly classified into individual units of property and accurate recovery periods for computing depreciation deductions.

I like to buy off the local classifieds first but when that's not an option, I go to the refurbished appliance store in my local town.  

We got it for $220,000 as not many people wanted to buy a horse farm and it was in distress.During the financing process the lender came back and said we can not do a conventional first time home buyer loan as this property is Not a single family home, it is classified as a farm.So we asked the town to subdivide the property.

Its classified as a SFM, then it will say multi-family on a different MLS site.

Compare that to something like a car, which is classified as a “convenience good”, which actually depreciates in value over time.So what can investors do to hedge against inflation and increase their returns?