Question

A taxpayer constructs a single building, leases it and sells it after three years.

a) Describe possible facts that may cause the investment to result in ordinary income.

b) Describe possible facts that may cause the investment to result in capital gains.

Answer 1

Classification of nature of income solely dependes on nature of businees carried by the taxpayer.

Depends on the nature of business the incoem can be classified as ordinary income or capital gains

a)

If the taxpayer nature of business in renting of property the income for lease rental can be considered as ordinary income

if the taxpayer nature of business is purchase and sale of building then the difference of cost os construction and selling price can be considered as ordinary income..

b)

If the taxpaer's nature of business is not purchasing and selling of building the the difference between the cost of construction and selling price can be considered as capital gains.