A Case for Simpler Gain Bifurcation for Real Estate Developers
Bradley T. Borden
Brooklyn Law School
Proskauer Rose LLP
John Wagner II
Williams Parker Harrison Dietz & Getzen
May 21, 2014
16 Florida Tax Review 279 (2014)
Brooklyn Law School, Legal Studies Paper No. 379
This Article examines the judicially sanctioned bifurcation of real estate developers’ gain. The Article recognizes that even though some commentators oppose granting favorable tax treatment to capital gains, the law most likely will not change. With that in mind, the Article examines the all-or-nothing approach of characterizing gain from the sale of real estate as either capital gain or ordinary income. The Article rejects the all-or-nothing approach of characterizing income under the current statutory system. Instead, it embraces gain bifurcation in the second-best setting that taxes capital gains and ordinary income differently. Illustrating the policy justification for gain bifurcation and judicially sanctioned bifurcation structures, the Article recommends that lawmakers should more fully embrace gain bifurcation for real estate developers by creating a simple statutory election for bifurcating gain that would enhance equity, accuracy, and transparency of gain bifurcation. Although the Article limits its analysis to real estate developers, the idea of gain bifurcation, once improved in this area, could be a catalyst for exploring bifurcation in other areas.
Number of Pages in PDF File: 46
Keywords: Capital gain, gain bifurcation, real estate development, Bramblett structure, ordinary income
Date posted: May 24, 2014 ; Last revised: October 9, 2014
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