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A Case for Simpler Gain Bifurcation for Real Estate Developers

46 Pages Posted: 24 May 2014 Last revised: 9 Oct 2014

Bradley T. Borden

Brooklyn Law School

Nathan Brown

Proskauer Rose LLP

John Wagner II

Williams Parker Harrison Dietz & Getzen

Date Written: May 21, 2014

Abstract

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.

Keywords: Capital gain, gain bifurcation, real estate development, Bramblett structure, ordinary income

Suggested Citation

Borden, Bradley T. and Brown, Nathan and Wagner, John, A Case for Simpler Gain Bifurcation for Real Estate Developers (May 21, 2014). 16 Florida Tax Review 279 (2014); Brooklyn Law School, Legal Studies Paper No. 379. Available at SSRN: https://ssrn.com/abstract=2439888

Bradley T. Borden (Contact Author)

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States

Nathan Brown

Proskauer Rose LLP ( email )

One Boca Place
2255 Glades Road
Boca Raton, FL 33431
United States

John Wagner II

Williams Parker Harrison Dietz & Getzen ( email )

200 South Orange Avenue
Sarasota, FL 34236
United States

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