Section 1237 Capital Gain Opportunity


DEFINITION of 'Section 1237 Capital Gain Opportunity'

This is a specific tax credit that allows taxpayers to receive capital gains treatment on the sale of subdivided lots of land. The purpose of the Section 1237 capital gain opportunity is to allow individual taxpayers who are not real estate dealers to escape ordinary tax treatment on the sale of a sublot of land.

BREAKING DOWN 'Section 1237 Capital Gain Opportunity'

Section 1237 mandates that the lot cannot have had substantial improvements made to it, meaning any improvement that increases the value of the land by more than 10%. This includes buildings, roads and utilities of any kind. Furthermore, the property sold must have been held for at least five years (unless it was inherited), and neither it nor any other sublots can be held for sale to other customers during the year of sale.

  1. Real Estate

    Land plus anything on it, including buildings and natural resources.
  2. Land

    Property or real estate, not including buildings or equipment, ...
  3. Ordinary Income

    Income received that is taxed at the highest rates, or ordinary ...
  4. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  5. Land Value

    The value of a piece of property, including both the value of ...
  6. Earnings Stripping

    Earnings Stripping is a commonly-used tactic by multinationals ...
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