Written by Jennifer Seaton, CPA, and Marlon Fortineaux, CPA
“A number of real estate developers build or rehab distressed properties with the intention of holding them for the production of rental income. But subsequently, they may decide to sell all or a portion of a building or project, such as a partially completed development. Sometimes the sale occurs before
the project begins, during development, or shortly after completion. Can the entire gain or a portion of the gain on the sale of property qualify for preferential capital gain treatment even though the project has not been completed?
To the extent the assets sold are considered by the IRS as Section 1231 property — property used in a trade or business held over one year — the taxpayer would be eligible for preferential capital gain treatment. In the context of developing a commercial building, many practitioners believe that a building must meet the following requirements to qualify as 1231 property: completion of the entire building, held over one year after completion, and ready for occupancy for an entire year to be eligible for preferential capital gain treatment.
As detailed below, there are a number of different situations where self-constructed or purchased property could be considered Section 1231 property without meeting the general requirements discussed above.
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Mike Stinson, a native of Monroe, Louisiana, is a graduate of Louisiana State University (LSU). A real estate licensee since 2004, Mike specializes in the sale and leasing of commercial real estate. A Designee member of the Certified Commercial Investment Member Institute (CCIM), Mike’s other professional memberships include Baton Rouge’s Commercial Investment Division (CID), the LSU Alumni Association, REALTOR Land Institute (RLI), an associate member of Louisiana REALTORS® (LR), and an associate member of the National Association of REALTORS® (NAR).
Saurage Rotenberg Commercial Real Estate is a member of the Baton Rouge Area Chamber of Commerce (BRAC); the West Baton Rouge Chamber of Commerce; the Baton Rouge Growth Coalition; the Baton Rouge Better Business Bureau; the Louisiana Commercial Data Base (LACDB); and the International Council of Shopping Centers (ICSC). Several agents, on an individual basis, are members of the Society of Industrial and Office Realtors® (SIOR), the Certified Commercial Investment Member Institute (CCIM); the National Association of REALTORS® (NAR); and the Greater Baton Rouge Association of REALTORS® Commercial Investment Division (CID).