Ordinary income vs. capital gain – How to treat real estate sale proceeds

Description

Abstract: When the owner of real estate sells a property, he or she typically prefers that the proceeds be treated as a capital gain rather than ordinary income for tax purposes, thus meaning the real estate was investment property. But what if the owner originally purchased the property for development and subsequently treated it as investment property? This article discusses a recent ruling from a federal district court in California that illustrates the undesirable tax consequences an owner can face when he or she changes plans.