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1411 NIIT and sale of undveloped real estate

  • 1.  1411 NIIT and sale of undveloped real estate

    Silver Most Valuable Member
    Posted 06-19-2019 13:33
    Hello All,

    Client  sold undeveloped real estate in 2018 at substantial gain. The client owns other property including shopping center and commercial property as well as other land. The land that was sold was looked at as a possible development project, possible land lease situations and was ultimately sold to another developer due to strong market conditions and a change in client circumstance.

    Client has a 20 plus year history of development, redevelopment, management and leasing of property and has earned his income primarily from real estate activities for the past 20 years. In my humble opinion the client is in the trade or business of real estate. The client has documented his time spent on real estate and can establish meeting the criteria of a being a real estate professional. he does not have a history of buying and selling property (i.e. sale of inventory).

     A portion of the proceeds on the sale of the undeveloped land was exchanged into other real estate activities and tax is being paid on the balance of the gain.

    1) Is the gain on sale subject to the NIIT under 1411?
    2) If excluded from NIIT as sale of property held in trade or business do we risk losing LTCG treatment on sale or put 1031 at risk?
    3) As a real stretch, would gain on sale be income subject to 199A since it was sale of property held in trade or business?

    I have been at this for months. Any thoughts or comments would be appreciated. I would be happy to engage someone on a consult if this happens to be in a person's area of expertise.

    Thank you.

    Robert Sick
    Patchogue NY