Bryan Camp has published an article on the TaxProf Blog, titled “Lesson From The Tax Court: How To Tell When Land Is Held As A Capital Asset”, which discusses William E. Musselwhite Jr. and Melissa Musselwhite v. Commissioner, T.C. Memo. 2022-57 (June 8, 2022) (Judge Ashford). The article begins as follows:
When a taxpayer buys land and later sells it, the character of the resulting gain or loss will depend on whether taxpayer held the land as an investment or instead held it like inventory, to be sold to customers as part of a trade or business. It is not always easy to tell how the land is being held and courts look at a variety of factors.
The lesson I take from William E. Musselwhite Jr. and Melissa Musselwhite v. Commissioner, T.C. Memo. 2022-57 (June 8, 2022) (Judge Ashford), is that how the taxpayer self-reports the activity in years prior to the year of disposition is one important factor in determining when land is held as investment. There, Mr. Musselwhite acquired four lots in what was to become a residential development. No development happened. For years he consistently reported holding the lots for investment. But when he eventually sold them for a big loss he and his wife reported the loss as ordinary, claiming on that return that he held the land for development. In an informative opinion, Judge Ashford held Mr. Musselwhite to his prior reporting position. Details below the fold.
Click here to see the full article: “Lesson From The Tax Court: How To Tell When Land Is Held As A Capital Asset.”
Posted by Will Frankenberry, Associate Editor, Wealth Strategies Journal.