real estate dealers

[Unregistered]

What ultimately determines whether someone is a dealer or investor? Ltd partnership exists to purchase land and resell. Some land has been subdivided into lots. Sewer, drainage, water and roads have been done. The property had only been held 15 months when the first lot sold. The intent is to market and sell the other parcels. If this is a dealer, does this make the income on the sale ordinary? If ordinary, in a 1065, is it all subject to SS tax?

[WhiteOleander]

I think that this property can not be considered investment property. If sold, the gain would not be as a result of market changes. It would be from their direct services and investment into the property. I think it is subject to ordinary gain and SE tax.

[Lance Emerson]

What ultimately determines whether someone is a dealer or investor? Ltd partnership exists to purchase land and resell. Some land has been subdivided into lots. Sewer, drainage, water and roads have been done. The property had only been held 15 months when the first lot sold. The intent is to market and sell the other parcels. If this is a dealer, does this make the income on the sale ordinary? If ordinary, in a 1065, is it all subject to SS tax?

Regulation 1.1402(a)(4) (in discussing self-employment tax):

"...an individual who is engaged in the business of selling real estate to customers with a view to the gains and profits that may be derived from such sales is a real estate dealer."

Sounds to me like you have a real estate dealer. They're not buying and holding onto the land for appreciation. They're buying, subdividing, improving, then selling to customers. If the intent is to market and sell, the intent is not to hold for appreciation.