Accounting for Pre-Transfer Development in Bramblett Transactions

41 Real Estate Taxation 162 (3rd Quarter, 2014)

16 Pages Posted: 18 Sep 2014

Date Written: September 16, 2014


Real estate developers commonly use so-called Bramblett transactions (reference is to a Fifth Circuit decision sanctioning the transactions) to bifurcate long-term capital gain and ordinary income on the disposition of property that begins as investment property and then converts to inventory. They bifurcate the gain by holding the property for investment in a tax partnership and then, when the property is ripe for development, causing the partnership to transfer the property to a related developer corporation in exchange for the corporation’s promissory note. As the developer corporation develops and sells the property, it repays the note. Thus, Bramblett transactions allow property owners to lock in a portion of the gain from the sale of the property as capital gain and to defer that gain until a third party ultimately purchases the property and the developer corporation pays down the note to the investor partnership. Nonetheless, pre-transfer development threatens both the character of gain recognized by the investor partnership and the timing of the gain recognition. In particular, I.R.C. sections 453(g) and 1239 could undermine any Bramblett transaction that includes depreciable property. This article describes the potential pitfalls that these two provisions present and discusses ways to avoid the pitfalls.

Keywords: Capital gain, gain bifurcation, real estate development, Bramblett structure, Bramblett transaction, ordinary income, depreciable property, section 453(g), section 1239, installment sale, capital gain lock in

Suggested Citation

Borden, Bradley T. and Rappaport, Matthew, Accounting for Pre-Transfer Development in Bramblett Transactions (September 16, 2014). 41 Real Estate Taxation 162 (3rd Quarter, 2014), Available at SSRN:

Bradley T. Borden (Contact Author)

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States


Matthew Rappaport


No Address Available
United States

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