You are a tax accountant, and two clients walk into your office on the same day.

Client A stops by in the morning and provides you with the following fact pattern:

I bought a piece of raw land over ten years ago. I had hopes of developing it, but never got past the planning stage. It was the first piece of land I ever owned, and I guess I bit off more than I can chew. However, last week someone made me an unsolicited offer for the land, so I sold it.

A few hours later, Client B stops by and tells a similar story:

In the past few years, in addition to my day job, I've tried my hand at a couple of "tear-downs;" I buy a crappy house, level it, build something nice, and sell it. I've tried this three times in the past few years. However, in my most recent venture, I bought a shack and garage, tore them down, started to build a home, gave up, and just sold the land last week.

Both clients end their meeting with the same question: Will the property I sold be treated as inventory or a capital asset?

How would you answer this question?

Answer rating: 100% (QA)

In both scenarios it seems like the clients may have engaged in real estate transactions and the det... View the full answer