Team 4 Wulfert Point and the Sanctuary Golf Club: (the Organization Chart structured to be utilized in structuring the lease/purchase of the property giving consideration to a syndication to raise capital for the development of the property is provided below.)
The original purchase of the Wulfert Point property for $20,000,000 involved the acquisition of an old key lime planation in a protected area or nature preserve on Sanibel Island, Florida. In order to secure approval for development density was dramatically reduced and hundreds of acres were donated to the Federal Wildlife Association and additional acreage set aside for an eagle preserve. Your “team” of four individuals is developing Wulfert Point.

  1. One eighteen hole golf courses with club house and golf practice facilities
  2. 5 Hospitality Suites in the Club House and Condos (108)
  3. Swimming pool
  4. 14 villas
  5. 106 single family lots
  6. 13 Duplex lots
  7. Tennis center, Fitness center and Spa
  8. Club House dining facilities.
  9. Construction of a sewage treatment facility
  10. Commitment for affordable housing
  11. Infrastructure including roads, power, water and sewer.
    Address the following:
  12. Address the tax elements of the ownership and operation of the “Hospitality Suites” utilized for overnight accommodations as a separate entity discussing the various forms of depreciation (1231 property – equipment, furniture, fixtures and buildings), allocations between land and buildings, operating expenses and capital expenditures. Cite relevant tax code sections.
  13. Address the tax elements of selling condominiums, real estate lots as a separate development entity, discussing the allocations between land and buildings, operating and selling expenses and capital expenditures and taxes ( capital gain or ordinary income and why) on sales of condo units. Consider sales office and model apartments. Cite relevant tax code sections when necessary.

Consider whether any of the above may be considered “Dealer Property” and recommend an accounting method and accounting period if applicable to the various aspects of the venture. Please discuss the distinction between operating expenses, startup expenses and syndication expenses and what needs to be expensed and capitalized with respect to each of the seven organizational structures and operations above. Also consider whether shorter recovery periods may apply to various components of the development.

Sample Solution