Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/536709
15 July | August | 2015 CCIM.com the dates they incurred. In determining the holding period of an asset, one must allocate expenditures and proceeds between the por- tion of the asset that was deemed held greater than one year (in the case of a one-year hold- ing period), and the other portion that was deemed held for a shorter time period. For example, assume the total project cost $100, $30 of that was incurred more than one year before the date of sale, and the total project was sold for $200. T e sale would be treated as the sale of a Section 1231 property with a basis of $30 and an amount realized of $60, generating $30 of long-term capital gain, and the sale of other property, presumably constituting a capital asset, with a basis of $70 and an amount realized of $140, generat- ing $70 of short-term capital gain. Planning Considerations To facilitate qualifying for long-term capital gain treatment under Section 1231, a devel- oper should keep detailed records, such as using construction draws, for all phases of a project to support the allocation of costs to various components of the project and to determine the aggregate percentage of the project costs incurred as of various dates. In addition, although Rev. Rul. 75-524 cited above seems to allow a strictly math- ematical bifurcation of a project into long- term and short-term portions based on the timing of expenditures, it may be important to have an alternate, less-abstract argument that various segments, sections, or units of a larger project were completed more than one year before the sale date. For example, a purchase and sales agreement might include a breakdown between the dif erent phases or aspects of the project and might provide for inspections, sign-of s, or other indicia of "completeness." Periodic appraisals of the "value" as of any particular to date, in addi- tion to the expenses incurred through that date, might also be helpful. Although this discussion has focused on real estate development, similar issues could arise with other self-constructed assets. Jennifer Seaton, CPA, is a tax partner in the Real Estate Group at McGladrey LLP. Contact her at jennifer.seaton@mcgladrey.com. Marlon Fortineaux, CPA, is tax senior manager in the Real Estate Group at McGladrey LLP. Contact him at marlon.fortineaux@mcgladrey.com. Tell Your Clients Who You Really Are. Want to make sure your clients and potential clients know you're a CCIM? T en af x your business card to the latest copy of Commercial Investment Real Estate magazine and leave it with them af er your next meeting. Or mail a copy with a personalized note. Bulk copies of CIRE are available to CCIM designees at greatly reduced prices for use in their personal marketing campaigns. Current Issue 1-Year Bulk Subscription ( 6 Issues ) 5 copies $15 $90 10 copies $25 $150 30 copies $60 $360 Limited quantities available, so call today to place your order. Shipping fees will be added to non-U.S. orders. Call 800-621-7027, ext. 4482. There are a number of different situations where self-constructed or purchased property could be considered Section 1231 property.