It has to be active.
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How is it determined if an activity involving land use can be considered a trade or business?
How is it determined if an activity involving land use can be considered a trade or business?
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There are no special rules under OZ tax law defining trade or business, so you must use the same facts-and-circumstances analysis as with any trade or business under Sec. 162. Ongoing, continuous, substantial business activities, management, etc. It can't just be raw land rented to a single tenant with little need to oversee as a business.
An active trade or business means more than passive activity (i.e. running an operating business, leasing real estate and keeping some operating/management functions, etc.). Land banking would not be an active trade or business. Also, you have to structure around absolute triple net leases. An active business would be any normal operating business, most real estate development, agricultural/farming, etc.
You look to Section 162 and the relevant guidance thereunder. The buzzwords are "regular, continuous, and substantial," so it'll take a lot for raw land to be used in any trade or business. If the land is undeveloped, the practical barriers are enormous.
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