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Tax issues for sale of land owned by a company

A company is doing very well, but the land the company owns is very valuable. A developer approaches the company and offers to purchase the land for $3 million. What are some tax issues relating to the potential disposition of the land for the company and the owners of the business?

Does the type of entity through which the business operates have a significant impact on the tax consequences resulting from a disposition of the land?

Solution Preview

Assumptions made for the discussion of the problem:

1. The land owned by the entity is an investment and not integral to the entity's business.

2. There is substantial profit to be reported on disposition of the land. The substantial profit provides an incentive for good tax planning and a survey of available options, regardless of complexity or cash flow constraints.

3. The company's operating business is not land development meaning the asset can be treated as a capital asset and not inventory of the entity, as it could be for a land developer.

What are some tax issues relating to the potential disposition of the land for the company and the owners of the business?

The tax issues include the character of the gain, the amount of the gain, the tax basis in the land, the holding period of the asset, and the timing of the payment of tax on the gain.

The importance of the character of the gain is to differentiate between inventory and an investment asset because ...

Solution Summary

The 684 word solution gives assumptions used in the solution and then lists five issues relating to the disposition of the land. For the type of entity, the solution provides information for the tax impacts of land held by four types of taxable entities.

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