Page:United States Statutes at Large Volume 68A.djvu/371

 CH. 1

NORMAL TAXES AND SURTAXES

331

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(A) the taxpayer or members of his family (as defined in section 267(c)(4)), by a corporation controlled by the taxpayer, or by a partnership which included the taxpayer as a partner; or (B) a lessee, b u t only if the improvement constitutes income to the taxpayer; or (C) Federal, State, or local government, or political subdivision thereof, b u t only if the improvement constitutes an addition to basis for the taxpayer; and (3) such lot or parcel, except in the case of real property acquired by inheritance or devise, is held by the taxpayer for a period of 5 years. (b) SPECIAL RULES FOE APPLICATION OF SECTION.—•

(1) GAINS.—If more than 5 lots or parcels contained in the same tract of real property are sold or exchanged, gain from any sale or exchange (which occurs in or after the taxable year in which the sixth lot or parcel is sold or exchanged) of any lot or parcel which comes within the provisions of paragraphs (1), (2) and (3) of subsection (a) of this section shall be deemed to be gain from the sale " of property held primarily for sale to customers in the ordinary course of the trade or business to the extent of 5 percent of the selling price. (2) EXPENDITURES OF SALE.—For the purpose of

computing

" neither be allowed as a deduction in computing taxable income, nor treated as reducing the amount realized on such sale or exchange; but so much of such expenditures as does not exceed the portion of gain deemed under paragraph (1) of this subsection to be gain ^ from the sale of property held primarily for sale to customers in ' the ordinary course of trade or business shall be so allowed as a " deduction, and the remainder, if any, shall be treated as reducing the amount realized on such sale or exchange. ' (3) NECESSARY IMPROVEMENTS.—No improvement shall be deemed a substantial improvement for purposes of subsection (a) if the lot or parcel is held by the taxpayer for a period of 10 years and if— • (A) such improvement is the building or installation of water or sewer facilities or roads (if such improvement would except for this paragraph constitute a substantial improvement); '• (B) it is shown to the satisfaction of the Secretary or his delegate that the lot or parcel, the value of which was substantially '' enhanced by such improvement, would not have been marketable at the prevailing local price for similar building sites without , such improvement; and (C) the taxpayer elects, in accordance with regulations prescribed by the Secretary or his delegate, to make no adjustment ^ to basis of the lot or parcel, or of any other property owned by the taxpayer, on account of the expenditures for such improvements. Such election shall not make any item deductible which ^ would not otherwise be deductible. (c) TRACT D E F I N E D. — For purposes of this section, the term "tract of real property" means a single piece of real property, except that 2 or more pieces of real property shall be considered a tract if at any § 1237(e)
 * gain under paragraph (1) of this subsection, expenditures incurred
 * in connection with the sale or exchange of any lot or parcel shall

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