Preconstruction Sale

[Brian EA]

Client signed construction deal 2 years ago. Upon completion the house was sold immediately. Do I use the completion date or the date the contract was signed to determine Long term or Short term gain/loss.

I am sure this would be a long term transaction, however with the way the tax season is going I am almost brain dead. Need comfirmation

thanks

brian

[outwest]

I'm thinking plain old..

ordinary trade or business of development. Not capital gain.

[JoshinNC]

I'm assuming this was a speculative purchase?

If so, I say LTCG if the client put money down and was paying the interest during the building process.

[Brian EA]

If so, I say LTCG if the client put money down and was paying the interest during the building process.

He put down $10,000 and did not pay any interest. The contract was signed a few months before hurricane Wilma struck. Construction was delayed for a few months and finally completed in july 2006 when it was sold. The company that wrote the contract arranged for the sale. All my client did was signed on the dotted lines and collected 76G.


brian

[JoshinNC]

Who's the company that wrote the contract?

He put down $10,000 and did not pay any interest. The contract was signed a few months before hurricane Wilma struck. Construction was delayed for a few months and finally completed in july 2006 when it was sold. The company that wrote the contract arranged for the sale. All my client did was signed on the dotted lines and collected 76G.


brian

Is it the builder? Sounds like your client acted as a buyer for the builder, who then arranged for a sale to a third party. I would say that this was an investment with the holding period beginning on the date that your client signed the contract to buy and made his deposit. How related, if at all, are your client, the builder and the ultimate buyer?

[Brian EA]

Is it the builder? Sounds like your client acted as a buyer for the builder, who then arranged for a sale to a third party. I would say that this was an investment with the holding period beginning on the date that your client signed the contract to buy and made his deposit. How related, if at all, are your client, the builder and the ultimate buyer?

No relationship. The real estate company arranged the seminar , my client attended and was convinced it was a good deal. he signed the contract and gave them the deposit.The builder/realestate company arranged for the sale. that's it.

brian

[Joe Btfsplk]

Sounds like he was 'lending' his credit to the builder

Your client may have lucked out and was dealing with an honest builder.
There is a scam I've heard of in which someone talks a person into financing a house with the promise to split the profit on the sale. The scammer then puts the deed in his name and sells it, leaving the debt in the name of the scamee.

[JoshinNC]

That's scary

No relationship. The real estate company arranged the seminar , my client attended and was convinced it was a good deal. he signed the contract and gave them the deposit.The builder/realestate company arranged for the sale. that's it.

brian

Anyhow, I think it still qualifies for LTCG treatment as long as the loan was in the client's name and the sale was in his name.

[Joe Btfsplk]

Did the client ever have title to the property?

If he loaned the money and did not have title to the property, then he could not sell the property and it would not be a capital gain. He who sells what isn't his'n goes to prison!

If he just loaned the money and got back more than he loaned, it would be ordinary income.

If he held title to the property, it would seem more like a construction-type arrangement and the rules for construction contracts would apply.

[OldJack]

I don't think your client has to own the property to have long-term capital gain as he invested in a contract that is in itself a capital asset (property) much the same as shares of stock in the stock market.