Important factors which have been identified in the case law as being taken into account in determining dealer status include the following:

1. Intent at time of acquisition,
2. Frequency and continuity of real property sales in earlier and later years,
3. Amount of sales,
4. Amount of advertising,
5. Amount and quality of improvements,
6. Amount of subdivision work undertaken,
7. Ratio of the cost of improvements to the original investment,
8. How long the property was held before commencing development,
9. Listing with brokers,
10. Placing signs on the property, and
11. Improvements.

What complicates the analysis is the fact that depending on the circumstances, a court may find the same set of facts giving rise to dealer status in one case and investor status in another. For example, while number of sales is often an important factor (i.e., many sales tends to indicate dealer status), there are cases where one sale was enough to find dealer status. See, e.g., S&H Inc. v. Com'r., 78 T.C. 234 (1982) (in this case the existence of pre-existing sales contract may have been determinative).

Section 1237 provides a safe harbor that allows for investor status where the noncorporate taxpayer simply subdivided the tract for sale purposes or engaged in any activity incident to the subdivision or sale so long as certain requirements are satisfied.
The first requirement is that such tract, or any lot or parcel thereof, had not previously been held by the taxpayer primarily for sale to customers in the ordinary course of trade or business (unless such tract as previous time would have been covered by the safe harbor), and, in the same taxable year in which the sale occurs, such taxpayer does not hold any other dealer property. Section 1237(a)(1).

The second requirement is that no substantial improvement that substantially enhances the value of the lot or parcel sold is made by the taxpayer on such tract while held by the taxpayer or is made pursuant to a contract of sale entered into between the taxpayer and the buyers. Section 1237 (a)(2). For purposes of this second requirement, an improvement shall be deemed to be made by the taxpayer if such improvement was made by certain related parties, a lessee where the improvement constitutes income to the taxpayer, or governmental bodies where the improvement is required to be added to the basis of the taxpayer's property. Id.

Certain improvements are excluded from the definition of a "substantial improvement." No improvement is deemed a substantial improvement 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, sewer, or drainage 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 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, 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 that would not otherwise be deductible. Section 1237(b)(3).