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    #1

    Short Sale

    I have a client that did spot building and he had to do a short sale on one of his properties. He incurred a $700,000 loss on the sale and will get a $300,000 1099C. What are my options?

    Issues: income ordinary (loss), capital gain (loss). Property owned by an S corporation.
    Last edited by BOB W; 10-08-2009, 09:27 AM.
    This post is for discussion purposes only and should be verified with other sources before actual use.

    Many times I post additional info on the post, Click on "message board" for updated content.
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    #2
    How did you treat his previous sales?

    Comment

      #3
      Originally posted by Davc View Post
      How did you treat his previous sales?
      I was afraid someone would ask me that. As it happens, this is his first sale of 3 multimillion homes that were started 3 years ago.

      Of course if a sale was made under "normal" circumstances. we would be touting LTCG. But now there is a super delema on the fire. So we would like to have the sales as an ordinary operating loss to be passed through his SCorp to off set the coming 1099C, with some left over incase it is needed in the future (NOL).

      I guess my real question is, is spot building by a construction company Ordinary Income or Capital Gaines?
      This post is for discussion purposes only and should be verified with other sources before actual use.

      Many times I post additional info on the post, Click on "message board" for updated content.

      Comment

        #4
        It's late and I could be wrong

        but it seems to me that in order to make the sale a capital loss the house would have to be a capital asset, right? And if I remember right an object produced or held for sale in the ordinary course of business cannot be considered a capital asset, right?

        Well, if that much is true then what else could we have from the sale of these houses other than ordinary gain or loss?

        Comment

          #5
          Originally posted by erchess View Post
          but it seems to me that in order to make the sale a capital loss the house would have to be a capital asset, right? And if I remember right an object produced or held for sale in the ordinary course of business cannot be considered a capital asset, right?

          Well, if that much is true then what else could we have from the sale of these houses other than ordinary gain or loss?
          I love your thinking>>Inventory for resale.. I hope it is that simple.
          This post is for discussion purposes only and should be verified with other sources before actual use.

          Many times I post additional info on the post, Click on "message board" for updated content.

          Comment

            #6
            I am not familiar with the term "spot building", but if he built three homes for resale I would most certainly consider this as inventory.
            http://www.viagrabelgiquefr.com/

            Comment

              #7
              Back to Davc

              I'm beginning to think like Davc. If this had been a gain instead of loss on a previous return, would he treat the property like inventory or would he report at favorable capital gains rate.

              Can't pick and choose whether this is business property or not.

              Or can you? Can an auditor make a case for this being unimproved business property and thus limit the loss to $3K per year or force it to net out against capital gains?

              Comment

                #8
                Originally posted by BOB W View Post

                I guess my real question is, is spot building by a construction company Ordinary Income or Capital Gaines?
                Why or how would a construction company constructing a building to sell ever be capital gains?

                The only possibility that I can think of is if the building was constructed to rent out as opposed to sell, but unable to rent and was foreclosed on.

                Intent, facts and circumstances would rule, but I don't believe you would be able to pick and choose ordinary vs. capital gain, it is one or the other, and if it was reported incorrectly on previous returns maybe some amendments will be needed.

                This is an area that has been discussed before and I know there are differences of opinions. My opinion is even if you are not a construction company and you build a spec home it is not a capital asset, by playing general contractor you are doing something to create a profit motive as opposed to purchasing property and speculating that it will increase in value.
                http://www.viagrabelgiquefr.com/

                Comment

                  #9
                  Originally posted by Jesse View Post
                  Why or how would a construction company constructing a building to sell ever be capital gains?

                  The only possibility that I can think of is if the building was constructed to rent out as opposed to sell, but unable to rent and was foreclosed on.

                  Intent, facts and circumstances would rule, but I don't believe you would be able to pick and choose ordinary vs. capital gain, it is one or the other, and if it was reported incorrectly on previous returns maybe some amendments will be needed.

                  This is an area that has been discussed before and I know there are differences of opinions. My opinion is even if you are not a construction company and you build a spec home it is not a capital asset, by playing general contractor you are doing something to create a profit motive as opposed to purchasing property and speculating that it will increase in value.
                  Looks like I have several votes for Ordinary Income (loss). I like it...................
                  This post is for discussion purposes only and should be verified with other sources before actual use.

                  Many times I post additional info on the post, Click on "message board" for updated content.

                  Comment

                    #10
                    Take a look at

                    the real estate dealer discussion in TTB page 7-12. I know it's dealing more with SE tax than anything else, but it seems to lend a little guidance to the discussion here.

                    ATG
                    "Congress has spoken to this issue through its audible silence."
                    Anyone ever notice they beat the daylights out of the definition of a child, but they don't spend much time at all defining "parent"?

                    Comment

                      #11
                      Originally posted by BOB W View Post
                      I love your thinking>>Inventory for resale.. I hope it is that simple.
                      It is. Slam, dunk. Ordinary income and ordinary loss.

                      Comment

                        #12
                        OK > Ordinary Income it is............Thanks All....................
                        This post is for discussion purposes only and should be verified with other sources before actual use.

                        Many times I post additional info on the post, Click on "message board" for updated content.

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