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I often get better answers here than at the IRS so before I call them, I'm wondering if anyone here knows much about house construction taxes.

Let's say someone is in business of buying land, building a house on it, and selling it. They have costs and income, a bottom line, and the profit ends up on Schedule C and there is income tax and SE tax. Just for example, let's say:
Land cost $20K
Construction cost $250K
Sale price $350K
Profit $80K

If they had the land for a year or two and it appreciated to, let's say $50K, can they not put the land on Schedule C as above but instead take it as a capital gain?
So the profit picture would look like this instead of the above:
$250K construction cost
$300K sale price (land sold "separately" for $50K)
Profit $50K.

Then take the land separately as $30K capital gain.

Can they do that? It's kind of like "pretending" they sold the land separately, isn't it? Seems a little fishy to me but I've been told by three contractors now that that's how they do it. Is it legitimate?

Thanks for any thoughts on this matter.
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