Six years ago, Linda's father gave some of his land to her. He had 50 acres of wooded land with a stream and a lake on it and the fmv is $1,500,000. Their deal was that her father would continue to raise pigs, sheep and peacocks on the land. Because he won the land in a poker game long ago, he had a zero basis. Now, her father has retired to Arizona to play golf. Linda's only interest in any of this is peacock feathers for her hats and she wants to sell it all. If Linda sells all of it to Land Rape Corporation she will receive $1,800,000. Her other alternative is to subdivide it and sell it as 10 luxurious home lots. If she does this she will have to invest an additional $200,000 in improvements such as roads and electricity. In return, she can sell the lots for $2,000,000. She has a number of very wealthy friends in the city and she can sell all the lots by herself to them and is in no hurry to complete the sales. Four of the lots are especially nice, and, by themselves, sell for $1,400,000. Linda's ordinary income tax rate is 40% and her long term capital gain tax rate is 15%. The remaining 6 lots can be sold for $100,000 each. Advise Linda about what is the best plan for getting her the most money, after tax. Be certain to show all work with specific numbers, tax rates, etc. Specifically, consider both the sale of the land in a single sale as well as the sale of the individual lots, with all numbers, gains, losses, tax rates, etc. Six years ago, Linda's father gave some of his land to her. He had 50 acres of wooded land with a stream and a lake on it and the fmv is $1,500,000. Their deal was that her father would continue to raise pigs, sheep and peacocks on the land. Because he won the land in a poker game long ago, he had a zero basis. Now, her father has retired to Arizona to play golf. Linda's only interest in any of this is peacock feathers for her hats and she wants to sell it all. If Linda sells all of it to Land Rape Corporation she will receive $1,800,000. Her other alternative is to subdivide it and sell it as 10 luxurious home lots. If she does this she will have to invest an additional $200,000 in improvements such as roads and electricity. In return, she can sell the lots for $2,000,000. She has a number of very wealthy friends in the city and she can sell all the lots by herself to them and is in no hurry to complete the sales. Four of the lots are especially nice, and, by themselves, sell for $1,400,000. Linda's ordinary income tax rate is 40% and her long term capital gain tax rate is 15%. The remaining 6 lots can be sold for $100,000 each. Advise Linda about what is the best plan for getting her the most money, after tax. Be certain to show all work with specific numbers, tax rates, etc. Specifically, consider both the sale of the land in a single sale as well as the sale of the individual lots, with all numbers, gains, losses, tax rates, etc
