The Tax Court recently examined the character of the gain on property sold to Centex Homes by GDLP (a limited partnership). The Tax Court examined several factors and found many favored the taxpayers, including:

  1. The property had never been substantially improved,
  2. The partnership had never sold real estate prior to the sale of this property,
  3. Extensive efforts to sell the property were not made, and
  4. The property was listed with a broker and a fee was paid based on the sale price.

Despite these findings for the taxpayers, they did not overcome the facts indicating the property was initially purchased and primarily held for development and GDLP never abandoned its development plan (evidenced by multiple attempts to obtain financing, incur substantial architectural, engineering and appraisal fees during a 10-year period). The gain was taxable as ordinary income under IRC Sec. 1221(a)(1). Victor Fargo, et al., TC Memo 2015-96 (Tax Ct.).