A construction contract to build the home, a hanger with offices and a landing strip was signed with S&TCC on January 15, 2019. The cost of building the home is $1,250,000. They paid 20% of the cost in cash and borrowed the balance from the Next Empire and Republic Bank (NERB) with a construction bridge loan at 6.25% per annum secured by the property. Construction on the home was completed on August 20, 2019 and the Solos executed a 30-year home mortgage loan secured by the principal residence at 4.35% per annum with NERB on September 22, 2019.

Separately, Han entered into a construction contract with S&TCC to build the hanger with offices and the airstrip on February 1, 2019. The hanger with offices and the airstrip houses Galactic Shipping LLC (GSLLC). The cost of the hanger with offices is $1,600,000. GSLLC will borrow 90% of the construction cost of the hanger with offices from NERB on a ten year note at a below market rate of interest of 0.125%. Han and Leia are personally guaranteeing the loan from NERB to GSLLC. The landing strip will cost another $1,245,000 to build. Han and Leia have decided to subdivide some of the 30-acre property to finance the building of the landing strip. They anticipate that they can sell six (6) two-acre lots for $389,000 apiece through BFR that is charging a 5% commission. BFR sold all six lots in 2019.

What are the tax issues involved?