Jon received a substantial inheritance from his deceased grandfather, who expres

Question

Jon received a substantial inheritance from his deceased grandfather, who expressed in his will his desire that Jon invest at least 75% of the money in real estate. Jon is in the market for his first home and plans to make a down payment of 20% of the home's purchase price and finance the rest with a mortgage. Jon wants to purchase some investment property in the form of residential rental real estate and is thinking about starting a real estate development company to convert a 120-acre parcel of raw land, on which he owns an option to buy, into residential building lots ?

Jon exercises the option to buy the raw land, will this be considered a "trade or business" of real estate development and what this means to Jon in terms of the tax treatment of the income he receives on the lot sales?

Jon mentions wants to be qualified as a "real estate professional" for tax purposes, is this possible?

Explanation / Answer

Jon should be able to prove that he

The real estate business may include real property development, construction, redevelopment, acquisition, operation, rental, conversion, management, brokerage, or, leasing business.

This is as per Section 469 (c) (7) (c)

Under IRS passive loss rules, the real estate professional then qualifies for deducing any amount of rental losses from non-rental income, for instance, real estate commission income

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.